Why the Finance Mortgage Lenders Handbook Causes Confusion

The digitalisation of key services running a business continues to be expansive, as you would expect. Every year there is a new emerging trend, a new 'hot word' or keyword, along with a new promise from technology vendors that these trends will change the way in which processes are run. But for the greater degree, they do.

Over yesteryear decade we have seen mobile banking alter the realm of personal finance, cloud computing has permanently improved workplace efficiency and proceedings, and artificial intelligence is different customer support, security and administrative tasks for the better.

With each new technology, concerns surrounding privacy, identity and fraud are brought into question. What this means is organisations are continually facing new legalities, and vendors, lawyers, start-ups, banks and retailers are frequently given new rules, regulations and administrative tasks that they must adhere to to be able to remain compliant.

Enter Regulatory Technology . By using big data and machine learning technology, RegTech cuts down on the risk to some company's compliance department by providing data on money laundering activities conducted online – activities that a traditional compliance team may not be aware of due to the increase of underground marketplaces. It will help firms with meeting their regulatory requirements.

In my years like a legal advisor to lawyers, I have recommended, observed and implemented RegTech technology, and may vouch first-hand because of its effectiveness in automating certain tasks whilst adhering to what the law states.

However, there's one key branch of RegTech that is potentially being underutilised within the legal sector: electronic verification, which utilizes digital processes to authenticate identity. It will this by matching certain data to external databases , through document verification processes or biometric checks .

Essentially, there is wording in the UK Finance Mortgage brokers handbook which is causing trouble for lawyers who provide conveyancing services, by making it unclear as to whether electronic verification technology is 'permitted'.

Before I explain this issue in more depth, let me clarify that electronic verification is not only safe, secure, legal and very good at improving and streamlining identity verification processes for property law firms, but it has even been promoted through the Fifth Anti-Money Laundering Directive . 5MLD did not result in the use of EV mandatory, however it did encourage the utilization of it in relation to the identity and verification processes.

However, as things stand, property law firms just don't know if EV can be used without also obtaining original documents, because of the wording of the small section in the UK Finance Mortgage Lenders Handbook.

On towards the issue

In the united kingdom Finance Mortgage Lenders Handbook, sections 3.1.5 and 3.1.6 of part 1 deals with mortgage fraud prevention. More specifically, it offers a specific guide to be sure that the solicitor has a document signed through the client, which may be when compared to mortgage deed, all to avoid impersonation fraud.

Whilst the firms can easily comply with 3.1.5 by requesting an image or scan from the relevant document, the wording in 3.1.6 shows that they have to have experienced the initial document, or obtained a certified copy. The particular wording which causes the problem is: “You should take a copy of it”, that is come to mean they need to have physical possession of the document and copy it.

From a legal perspective, this wording is confusing. It implies that EV by itself isn't permitted as conveyancers will need to take an actual copy of a document for their own verification processes.

Many firms happen to be reluctant to use EV because it appears to be unnecessary duplication.

You could state that lawyers should probably be likely to have a physical copy of the important document with regards to something as critical as taking out a home loan simply because it's believed to be more secure. But this is quite not true. In today's current climate, electronic verification technologies are a far more robust way to detect fraud, verify identity and authenticate documents than through physical means. In addition, EV speeds up processes and creates a more efficient end-to-end safety solution for the buyer, the seller, the lending company and also the law practice.

This issue is not only affecting the mortgage side of law, either. Some businesses that concentrate on multiple regions of law are reluctant to adopt EV technology for just about any of the work, simply because they are unsure whether or not you can use it for conveyancing. This leaves the firm counting on less secure methods of verification, and great risk of identity theft.

Beyond lockdown and social distancing measures, we're already moving to some 100% digital environment. The 21st century consumer is very much becoming familiar with instant, online services with regards to their very own safety, and for their general convenience. And, if these types of services also are actually far more secure, efficient and cost effective compared to physical processes, surely switching to an entirely digital EV process is really a no-brainer? If perhaps the UK Mortgage brokers Handbook allows it.

So how can this be 'issue' still a problem?

Why hasn't there been any clarification from UK Finance or an update from the Mortgage brokers Handbook?

I have no idea. Personally, i have reached to UK Finance and sought clarification, an update, and demanded action, but didn't end up with far.

They said they couldn't address this problem centrally and, if necessary, each solicitor should contact their relevant lender for advice. However, I have heard differently from other practitioners – they have learned that they could verify documents using EV having a copy and not the original document.

It's this grey area between what legal firms can and can't do this causes so much unnecessary confusion, and it's baffling that this has remained a problem for thus long, if this might be easily rectified with a simple update or announcement.

What makes this refusal to resolve even more confusing is always that the Scottish version of the Mortgage brokers handbook does not have exactly the same wording. Either it's been altered, or this specific wording was never included in Scotland , but regardless, it ought to be that our Mortgage Lenders Handbook is adapted, altered, or even scrapped instead of a universal version. In the end, we're an element of the UK!

Moving forward, lawyers who use the UK Mortgage Lenders Handbook should seek clarification from lenders until this wording discrepancy is resolved.