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Ever increasing fraud levels and increasingly sophisticated methods of fraud are, it seems, an ever-present threat now for the property transaction and sadly this isn’t a new problem. Back in 2008 research by American Express identified ID theft as the biggest security concern for 43% of individuals in the survey - higher even than street crime. If the poll was re-run today that 43% figure would probably be higher.

Conveyancers will be all too familiar with the increasing levels of fraud and the almost exponential growth in the number of warnings the SRA have issued over the last few years in relation to bogus law firms. In turn, the last few SRA Risk Reviews have had fraud as the central theme.

Probably in response to the latest SRA Risk Review where the three primary risks were fraud related (bogus law firms, money laundering and cybercrime), the Law Society on 21st August 2015 published a practice note aimed at helping law firms recover if they fall victim to a client account scam.

On the back of the new practice note, in September, TM Group asked conveyancers: “Has the latest Law Society Practice Note led to any changes at your practice?”

The results were surprising with at least a third of conveyancers stating that they hadn’t even heard of the practice note (see chart below).

Last month saw the SRA publish their Risk Outlook for Spring 2015 which showed that little - in terms of the risks faced by firms - has changed much since their Autumn Update. The key areas of concern for the SRA remain bogus law firms, money laundering and the misuse of money or assets.

Some the figures associated with these issues are staggering.

In 2014 the SRA received over 700 reports of bogus firms which is the highest ever recorded. In 2013 the SRA received 548 reports about bogus law firms, up from 312 in 2012, so it is easy to see why bogus law firms are now seen as a real risk by the SRA to all sizes of law firms and should the rise in firms reported continue at the same rate in 2015 the figures will be near 1000.

Sadly this is reflected nationally across the whole economy with KPMG reporting a significant increase in fraud cases. There is little evidence to suggest that this trend will decline.

The SRA aim to visit 500 firms to audit their Anti-Money Laundering (AML) processes. Image copyright Images Money.

The SRA are now well into their assessment of a number of firms who are subject to the auditing of their current AML processes. They are aiming to visit 500 firms and their activity has been driven by an increase in reports concerning AML compliance - a handful of cases the likes of which they have not been seen before - as well as pressure from law enforcement agencies.

At a recent conference in March Steve Wilmott, Director of Intelligence and Investigation at the SRA, said that they will be looking at systems and procedures, record keeping, training and the activity of the MRLO at the firm. If they were to visit how confident would you be of passing their inspection?

Another area to feature in the Spring report is the misuse of money or assets.  The report revealed that things have changed little since Autumn with poor financial controls continuing to ‘provide opportunities for financial misconduct to occur.’

Within the update, the regulator states that they have seen recent cases where ‘poor systems and controls have been a factor in the misuse of money or assets’, citing that the root of the problem lies in inadequacies in training and supervision, as well as failure to control access to accounts.

So what can firms do to reduce these key risks? Well there is certainly quite a lot of information and service available which I will touch on.

1. 1. Use ‘Find a Solicitor’ on the Law Society website.
2. 2. Check the SRA website for updates on scam alerts.
3. 3. Make independent verification checks using Lawyer Checker which is only £10 and widely available.
4. 4. Online AML verification is readily available, inexpensive, comprehensive and instantaneous and covers UK and International clients from about £4 per name.
5. 5. Reliance on bank statements, passports and utility bills should be consigned to the past.
6. 6. Use secure search websites that are username and password protected and can provide an audit trail for every case.

The number of bogus law firms reported to the SRA over the past few years has increased exponentially.

So much so, in fact, that the SRA saw fit to reserve special mention for the problem in their recent update to the risk outlook 2014 - and yet, many law firms remain blind to it.

When the SRA published their Risk Outlook 2014-15 in July of this year to assess the key risks to firms in carrying out their regulatory objectives there was a new entry in the Risk Outlook chart compared to 2013, namely bogus law firms.

The other four including misuse of money, money laundering controls, a failure of service and diversity within the workplace remain, so where has this new threat emerged from?

In a recent survey to discover what checks, if any, conveyancers do before sending money to the seller's solicitors, it was revealed that 80% of conveyancers are still not performing bank account checks before handing over client and lender monies.

The survey was conducted at a recent conveyancing CPD seminar designed to help property solicitors mitigate risk and comply with regulatory requirements and was hosted by TM Group featuring guest speaker Jenny Owen from Lawyer Checker.

Mortgage fraud is one of the most significant and costly areas of risk for conveyancers and can put your PII renewals under serious threat. In 2013, the National Fraud Authority estimated the annual financial loss attributed to mortgage fraud at £1bn and lenders and clients will almost certainly have the inclination and right to initiate litigation to claim any lost money back.

A new whitepaper report on Mortgage Fraud has revealed that the majority of lenders surveyed consider 'solicitor negligence' to be the biggest fraud risk to their business.

The survey of more than 28 mortgage lenders shows that more than a third of the lenders fear 'solicitor negligence' but this can manifest in various forms and have serious consequences for the solicitor as well as the lender.

In a recent survey, mortgage lenders identified 'solicitor negligence' as the greatest risk to their businesses.

Mortgage fraud is a threat that is growing each year; in its 2013 Annual Fraud Indicator report, the National Fraud Authority estimated the annual loss attributed to mortgage fraud to be £1bn. Meanwhile, the SRA received 549 reports of bogus law firms in 2013, a 57 percent increase on the number from 2012.