Quality control of e-dealing
The Registrar-General of Land says that overall, the e-dealing system is working well and lawyers take their obligations seriously – but there is still room for improvement.
Robbie Muir says lawyers need to be particularly careful when certifying and signing transactions.
“They need to confirm they have all the requisite authorities and must satisfy themselves of this. The ultimate responsibility rests with the certifying practitioner and there are strong sanctions for making false certifications,” he says.
Under the e-dealing system, lawyers must certify that they have authority to act for a party, that they have taken steps to identify the person who gave the authority, and that the instrument complies with any statutory requirements (s164A, Land Transfer Act 1952).
A certifying lawyer is responsible under statute for ensuring the certifications he or she makes are accurate and backed up by appropriate supporting documentation. Similarly, a lawyer is liable if he or she fails to take reasonable steps to prevent fraud in terms of their client identity verification obligations.
Sections 164A(3)(d) and 164C of the Land Transfer Act 1952 and regulation 14 of the Land Transfer Act Regulations 2002 specify that the Registrar-General is authorised to undertake a compliance review of e-dealing certifications provided by practitioners. Practitioners must hold supporting evidence showing the truth of their certifications and retain the evidence for 10 years.
LINZ's compliance review process checks selected firms’ e-dealing documentation, where samples of e-dealing transactions are chosen for review. The practitioner is asked to complete a questionnaire and supply supporting evidence for the certifications given in the e-dealings selected for review. The Registrar-General will issue a compliance certificate at the end of the review.
Cases of non-compliance are detected from time to time. While these are generally low level matters which can be rectified, they do highlight the need for lawyers to have good systems and controls in place and to keep up to date on relevant education and guidance. There is, according to the Registrar-General, some room for improvement in this area.
LINZ aims to contact all law firms with an e-dealing licence, through either the compliance review process or a systems and controls audit. The selection criteria for the systems and controls audit include the volume of e-dealing transactions submitted by the firm, results stemming from the compliance review process, and geographic location.
Following an audit visit, where appropriate, LINZ will make recommendations to a firm on ways that the control environment can be improved to reduce any e-dealing risks that are identified during the audit.
When Armstrong Barton of Whanganui was chosen for a routine systems and controls audit, LINZ saw an opportunity for the firm to strengthen its quality assurance processes. For Armstrong Barton to gain its own assurance over the quality of e-dealing transactions being processed, LINZ recommended the use of e-dealing checklists, and internal audit of completed e-dealing transactions.
Of the LINZ risk-based audit process, practice manager Katrina Davidson says that they had no major non-compliance issues.
“They were not here to slap our hands, but to work with us. It made the whole process a lot less daunting.
“We can now keep ourselves in check internally and make sure no one is doing any dodgy dealings. We decided to self-audit quarterly which coincides with our report to the New Zealand Law Society.
“I do think, though, that external auditing should be carried out by LINZ on a more regular basis rather than random selections, as it helps to keep you up to date and always in the clear,” says Ms Davidson.
Richard Cross of Willis Toomey Robinson in Napier says they were one of the pilot firms for the systems and controls-based audit approach.
“It keeps us on our toes to make sure we are complying. We now own our operations a bit more and it makes sure all of our authors know what is involved in the sign and certify process,” he says.
LINZ is currently considering piloting a control self-assessment process to assist firms assess the adequacy of their own e-dealing controls. Mr Cross will be working alongside LINZ to help design and pilot the scheme.
LINZ also works closely with the Law Society on the development of guidance and education material for e-dealing and notifies the NZLS Lawyers Complaints Service of serious non-compliance issues.
Enforcement activity, such as suspension or revocation of Landonline certification rights, is initiated for serious cases where non-compliance is deliberate or habitual.
The Registrar-General of Land has the ability to remove Landonline certification rights in circumstances where he has reasonable grounds to believe a lawyer has given a fraudulent certification, given a certification that is materially incorrect, or failed to comply with audit requirements.
Recently, a Lawyers Standards Committee found a Rotorua lawyer guilty of unsatisfactory conduct after concerns were raised in a LINZ transaction. The lawyer had falsely witnessed an Authority and Instruction form for a LINZ transaction (verifying a photo ID when he had not met the client). The committee censured the lawyer, fined him $5,000 and ordered him to pay $1,500 costs to the Law Society.
The Law Society’s Inspectorate also reviews client ID and Authority and Instruction forms in any conveyancing files it selects for review in the context of trust account audits. As similar work is being done by LINZ and the Law Society with the same population of lawyers, work is currently under way to explore what opportunities there might be for more co-ordination and collaboration in these areas.
This article was published in LawTalk 785, 4 November 2011, page 5.