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CRITERIA FOR ACCEPTANCE OF MANDATING

It is anticipated that regulation requiring all eligible documents to be registered electronically by May 1st will be gazetted in the coming days.

The AICWA has met with representatives from Landgate and the Minister for Transport, Planning and Lands office to outline our concerns. 

AICWA remains fully supportive of a transition to electronic settlement. In fact, we accept that there are circumstances where regulation to mandate electronic lodgement of eligible transactions would be both appropriate and indeed desirable.                                          

However, such a mandate is premature at this time.

AICWA was asked to identify the essential criteria that need to be satisfied before it could support such regulation. To ensure protection of both consumers and subscribers the AICWA would like to see:

  1. Additional regulation that results in true and effective pricing control by an independent regulatory authority to protect consumers
  2. Facilitation of competitive forces by removal of impediments to a second Electronic Network Operator (ELNO) 
  3. A transparent Disaster Recovery Plan (DRP) & Business Continuity Plan (BCP)
  4. Industry concerns addressed such that market forces (rather than regulation) results in organic growth in take-up to a point where a majority of eligible transactions are conducted electronically.

In essence AICWA remains opposed to regulation whilst:

  • Regulation creates a monopoly without effective pricing control mechanisms.
  • Significant barriers to entry of a second ELNO exist
  • In the absence of a competitor there is no competitive pressure or incentive to improve product.
  • Regulation overrides rather than compliments market forces

AICWA Criteria Explained:

  1. Additional regulation that results in true & effective pricing control by an independent regulatory authority to protect consumers.
  • PEXA’s current “Pricing Policy” and the ARNECC requirements for PEXA/ELNO’s under the Model Operating Requirements in relation to the “policy” do not adequately provide for consumer pricing protection. Issues clearly exist as to whether PEXA/ELNO can change their “Pricing Policy” at will and above CPI.
  • It is unclear what resources and powers ARENCC has at its disposal to conduct a review of PEXA/ELNO pricing particularly in the event PEXA/ELNO were to increase fees above CPI.
  • Reliance on ARENCC to serve as a regulator is not supported by appropriate resources, regulatory powers or sufficient independence to regulate a national platform which is anticipated to transact over $2 trillion in financial settlements. Regulation must be assigned to an appropriate body with expertise and experience.

   2. Facilitation of competitive forces by removal of impediments to a second Electronic Network Operator (ELNO)

  • Benefits of fostering competition serve consumer interests and guarantee ongoing system improvements. Existing barriers currently in place should be addressed to foster competition.
  • Competition can only be achieved if there is capacity for interoperability. Regardless of whether another private entity is willing to raise/invest capital to become an ELNO there must be appropriate connectivity to facilitate the interoperability. 

   3. A transparent Disaster Recovery Plan (DRP) & Business Continuity Plan (BCP)

  • No plans have been communicated on how to manage a prolonged outage/disruption once reliance shifts to a single online electronic financial settlement platform. BCP & DRP needs to be clear as to how all key stakeholders (conveyancers, banks. FI’s, OSR and Landgate) will operate in the event of catastrophic failure.  

   4. Industry concerns addressed such that market forces (rather than regulation) results in organic growth in take-up to a point where a majority of eligible transactions are conducted electronically

  • Conveyancers and Lawyers need to be satisfied their transition to e-conveyancing has been undertaken with sufficient care and with confidence in an appropriate regulatory framework.  A significant percentage increase in practitioners using PEXA/ELNO would indicate a level of acceptance (market force) to warrant a mandate.

 

HURDLES TO UPTAKE

Various unresolved hurdles or barriers currently exist in acceptance to adopt PEXA and the mandate. They are:

  • PEXA/ELNO fee should be deemed a recoverable “statutory” fee and separate to the settlement fee. This requires the Settlement Agents Code of Conduct 2016 Part 5 Rule 23 being replaced/amened to simply read adherence to current Australian Consumer Law provisions. Current interpretation requires the PEXA fee to be disclosed as part of the Settlement fee. This creates an incorrect perception that PEXA somehow replaces $110.55 worth of the Settlements Agents role. This perception is incorrect.
  • Reduction in cost to consumers. This can be achieved by:
  • Reduction in PEXA fee, and/or
  • More parity in Transfer/bank fees to reflect efficiency savings by banks, and/or
  • Reduction in Landgate registration fees to reflect efficiency savings.

Claims suggesting e-conveyancing provides for a more secure online digital lodgement could be supported by reducing or removing the current scale applied to transfers based on consideration value (otherwise known as ad valorem). 

  • Electronic fund transfer mechanisms to ensure that client’s funds are not credited to the wrong account. This may require additional verification protocols similar to how a bank teller currently verifies the account name and account number before accepting a cheque. This precaution would most likely require the assistance of ARENCC to facilitate the outcome with ASIC or APRA.

Currently, misdirection of funds is not seen as an issue for banks as the risk rests with the conveyancer. An increase in misdirected funds would affect consumer confidence in the PEXA platform and potentially expose conveyancers to claims for damages. In the event claims are made and are successful against the shared PI policy all licensed settlement agents will be burdened by higher premiums. Presumably this would also be the case for practicing lawyers.

The importance of additional verification has been highlighted by recent EFT frauds that are increasing in frequency. Investigation into potential solutions has become an imperative.

  • Resolving GST issues for invoicing in PEXA that currently creates concerns for consumers who are unable to claim GST if entitled to do so. There exists potential for conveyancers to be liable for GST remittance to consumers or for consumers to be unfairly denied an entitled claim.     
  • Updating of the General Form of General Conditions (JFGC’s) incorporating the e-Conveyancing Annexure. The existing Annexure only applies if completed at the point in which the Contract of Sale (O&A) is signed. AICWA’s “Variation” to remedy this issue is provided to its Members however neither the Annexure nor the Variation are sufficient substitutes for an updated JFGC’s.        
  • Subsidised training for non-AICWA settlement agents/solicitors.
  • Negotiation between Landgate and AICWA regarding:
  • Revised ‘Lodgement Acceptability Check’ to determine eligibility
  • Mechanism to obtain exemption if required
  • Compliance audit regarding complex documents
  • Ability for conveyancers to sign paper Transfers in the event transactions have to revert to paper/manual processes. This measure is in place in other state jurisdictions and allows for   efficiencies to support e-conveyancing.
  • Authority for licensed settlement agents to cite evidence.  
  • Remove the conflict of interest by Landgate divesting itself of its financial interest in PEXA.
  • An independent review of security of the PEXA platform.
  • An independent assessment of perceived increase in potential  risk/responsibility to PI insurers (to be funded by DMIRS, Landgate or ARNECC)
  • All financial institution trust accounts able to be used as ‘source account” in PEXA.
  • Penalties for non-compliance of Transfer guidelines (e.g. timeframe for response to invites/conversations)
  • Banks input to control financial settlement services (FSS) to be revised/limited so as to ensure that buyer’s settlement agent is in control of buyer’s funds.
  • Increase in scope to Revenue On Line (ROL) so as to facilitate a wider variety of transaction types.  

 

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