Innovating one step at a time – could escrow improve conveyancing?
Olly Thornton-Berry is the Co-Founder of Thirdfort Limited, a proptech business that is developing escrow technology with the Land Registry to provide conveyancers with a new way to manage client funds. In this article, Olly discusses the movement towards prioritisation of security and efficiency in the conveyancing sector, as well as how streamlining internal processes could help to reduce the risk of fraud which the market is a constant target of.
“Technology is rapidly changing every aspect of our lives. Aside from how we do things on a day to day basis, technological advancement in how people search for their dream home has made the process significantly easier and quicker for the consumer. Now, nearly every property search starts online with consumers filtering and sorting with a few clicks. While technology has revolutionised how property is found and viewed, it has yet to make any real change to the process after an offer is made.
It is not to say the post-offer process is broken, far from it. Over 1 million residential properties are bought and sold every year in the UK, usually without too much friction. However, too many transactions fall over (more than 1 in 4 according to official figures), the process is too fraught with risk and too much information gathering is left until the last minute.
Of course, technological change in conveyancing faces many barriers. Firstly, many are sceptical of new approaches to a process relied on by us all to carry out one of life’s most important transactions. Secondly, conveyancing requires managing between many different parties whose appetite for the balance between risk and speed of execution isn’t always the same – for instance, contrast estate agents and mortgage lenders.
Given conveyancing still functions effectively most of the time, it is for technology to work with the industry to offer incremental improvement rather than attempt to overhaul it in one fell swoop. The aforementioned barriers highlight why a silver bullet solution is unlikely to emerge any time soon.
Therefore, it is important to examine what incremental changes can be achieved in the short term with the help of technology. Consider the flow of money and the challenges that handling client funds give conveyancers and whether there may be a better alternative on the horizon.
Of course, procedures for receiving and paying out client funds vary from firm to firm, however, it is worth noting some general trends. Firstly, fraud rates are rising fast due to email interception and property hijacking. In 2017, BDO reported that over £200m was stolen in UK property transactions while the Land Registry found an almost three-fold increase in property hijacking attempts in 2017 against 2015.
Secondly, it is becoming increasingly complex to juggle AML and ID checking with the burdensome admin of processing payments.
A recent rule change from the SRA has permitted firms to begin partnering with external payment platforms to facilitate payments with the potential to add security and efficiency for both consumer and conveyancer. Such a platform is referred to by the SRA as a ‘Third Party Managed Account’ also known by some as an ‘escrow account’.
Over the past 18 months, there have been big advancements in escrow technology enabling account details to be securely uploaded online (removing email vulnerabilities) and facilitating the secure movement of funds using a third party account.
Taking this further, there is potential to incorporate e-signing and central clearing to prevent chains significantly slowing the process down due to the long zigzag of sign-offs in money transfer and draw down of mortgage funds.
Such a system may pave the way to front load many of the checks and balances, adding transparency and significantly reducing the number of times money bounces between accounts in many transactions. Also, insurance firms may better understand the risk profile of conveyancers if they no longer hold client funds themselves. Theoretically, this may result in reducing premiums for those who demonstrate strong risk management in other parts of their organisation while they rely on a third party to hold and assist them when processing client funds.
However, it is important to appreciate this technology is nascent and there is much to work through before it is fit for mainstream use. But, the prospect for many conveyancers of not holding client funds may become increasingly appealing as it has the potential to improve how they operate, make them more profitable and, help them sleep better at night.