Consultation Response

Consultation Response Ensuring Consumers Receive Independent Advice Separate Representation Consultation Responses August 2013 v3 © The Law Society of Scotland 2013 CONTENTS Part A: Analysing the consultation responses 2 Introduction 2 Setting the scene 6 Executive summary (all responses) 12 Regulatory objectives 24 Part B: The Proposed Draft Rule Change 41 Part C: Extract from the Briefing Paper considering the 44 Conflict of Interest Practice Rules prepared by Brodies LLP The Exceptions to Rule B2.1.4 and proposed amendments 44 Other potential Rule changes 47 Guidance 49 Appendix 1 51 This appendix provides various summary data on the level of responses, who responded, and an overview of how they responded to the multiple choice elements. © The Law Society of Scotland 2013 Page | 1 Part A: Analysing the consultation responses INTRODUCTION The Law Society of Scotland aims to lead and support a successful and respected Scottish legal profession. Not only do we act in the interests of our solicitor members but we also have a clear responsibility to work in the public interest. The Law Society of Scotland’s consultation on the issue of separate representation in conveyancing transactions opened on 18 June 2013 and closed on 21 July 2013. We received 279 responses from our members and from individuals and organisations outwith the legal profession and would like to thank everyone who took the time to respond. The consultation sought views on mandatory separate representation in conveyancing transactions between borrowers and lenders. The consultation response evidences that this is very much a live issue, with strong opinions on both sides. This consultation response seeks to illustrate these opinions by providing a representative sample of views from the respondents as well as highlighting related issues raised by the consultation. Following a majority vote at the annual general meeting (AGM) on 22 March 2013 on the principle of separate representation, members will vote on a proposed rule change at the special general meeting (SGM) to be held on 23 September 2013. We are encouraging as much debate as possible prior to the SGM for the benefit of our membership as a whole. Consultees In addition to its members, the Society contacted a number of stakeholders whose details can be found at Appendix 1 Part E , and includes all solicitors in Scotland, all mortgage lenders (working to a list provided by the Financial Conduct Authority), and a number of consumer groups. The list of respondents can be found at Appendix 1 Part E, although a high number elected to remain anonymous and requested that their details were not published. All responses are available on our website (www.lawscot.org.uk/seprep) as we committed to in our consultation document, although these are redacted to ensure the privacy of respondents who requested this. © The Law Society of Scotland 2013 Page | 2 Solicitors The majority of responses came from solicitors. Of those responses, just under half were from solicitors operating in residential conveyancing. A full analysis of the statistics can be found at Appendix 1. Lenders Knowing that lenders would have views on this, we wrote to them all and raised some specific issues such as a suitable timeframe for implementation. We received responses from three lenders, one of whom asked to remain anonymous. Other Stakeholders We were pleased to receive responses from a number of stakeholders including Which?, the Council of Mortgage Lenders (CML), Homes for Scotland and Registers of Scotland. Summary of responses Those responding through the online tool (251 out of 279) were asked whether, irrespective of the actual drafting, they were in favour of or against separate representation. Without any weighting (for organisation or individuals and other factors) the split was 48.9% in favour and 51.1% against. If we look at individuals only it was 47.5% in favour and 52.5% against; if we look only at individuals who are solicitors and working in residential conveyancing the response was 47.7% in favour and 52.3% against. If we look at organisational responses only it was 59.1% in favour and 40.9% against. Care must be taken with these numbers. For example, 12 individuals responded from one organisation, in addition to providing an organisational response. A further ten anonymous responses came from the same IP address (originating computer server). This was entirely legitimate within our consultation processes (and indeed although most of these responses favoured one side of the debate some favoured the other) but it does emphasise that the results are not the same as may occur in the one member one vote system at the SGM. © The Law Society of Scotland 2013 Page | 3 Where responses were received as a letter, email or document they did not always provide a ‘yes’ or ‘no’ answer to the question in the consultation around ‘in principle’ support of separate representation. Even where a clear view was expressed, this was not always in response to the question as phrased in the paper, so these numbers cannot be aggregated with the online responses discussed above. However, 24 were assessed as generally against the need for a rule change, 6 as generally in favour of a rule change, and in 1 no discernible position on the issue was taken. Given the empirical and varied nature of the responses there is no clear and consistent consensus. Accordingly, all responses are treated equally in terms of their ability to assist our understanding of issues and ideas for drafting. It remains inconclusive as to how the consultation might relate to a vote of solicitors at the SGM – for example, we can analyse the law firms which responded organisationally and the number of partners and solicitors they may have, but we cannot ascertain whether all those individuals would vote or vote in a particular way. Outcome and next steps The responses to the consultation have disclosed a range of robust views on both sides and highlighted other consequences that a rule change might create. There is currently no clear consensus that a rule change is required, however, the Society is mandated by its members, by their previous vote in March, to bring a rule change to the SGM. The consultation response has produced a highly constructive platform to progress the debate i.e.: 1. Providing an evidence base on either side of the debate which will inform discussions in the lead up to the SGM. 2. Providing thoughtful analysis against the ‘regulatory objectives’ the Society must consider allowing us to better discuss issues around public and consumer interest 3. Illustrating potentially unintended consequences of the proposed rule change 4. Assessing, and recommending changes as well as specific amendments to the drafting of the proposed rule. © The Law Society of Scotland 2013 Page | 4 The Rule The drafting of the proposed rule change presented in the consultation was a clear prohibition on separate representation without exceptions. A number of respondents rejected the rule completely on account of being opposed to separate representation in principle. While some responses reflected support for the original drafting of the “absolute” rule, feedback as disclosed from the responses we have received, has also revealed support for a different approach. Accordingly, amended drafting, developed with the assistance of Brodies (the Society’s panel law firm) is provided for consideration within this consultation response reflecting this alternative approach and demonstrating the Society’s commitment to respond to real and often practical issues raised in the consultation response. What next? This rule change will now be presented to the Society’s Regulatory Committee for discussion. The Regulatory Committee will decide the final form of the rule presented to members at the September SGM. The Council of the Society will also reach a policy view on the terms of the proposed rule change. Members will then vote in accordance with the normal arrangements for general meetings of the Society, and if any rule change is approved then it will be sent to the Lord President for the final substantive stage of the rule making process. Conclusion The consultation response reflects that views on this issue are finely balanced. There is currently no consensus. Solicitors with strong feelings may wish to ensure they are fully prepared for the SGM and are encouraged to articulate and support their position in a vote at the SGM on 23 September 2013. Stakeholder Responses Much of the debate on separate representation has focused on the public interest. A small number of bodies have been very vocal on the perceived possible detriment, and this has been widely reported in the media. © The Law Society of Scotland 2013 Page | 5 SETTING THE SCENE Which? The Society believes that a rule change will ultimately be beneficial to the consumer and are delighted that consumer interest organisation Which? took the time to respond to the consultation. Which? describes its role as: “Which? exists to make people as powerful as the organisations that affect their lives. We don't accept any advertising, freebies or sponsorship. All our research and campaigning is completely independent and funded by subscriptions.” In responding to the consultation they said: “Which? believes that homebuyers should be able to choose to use the same solicitor as their lender for the conveyancing process. While it is doubtless true that some consumers will prefer to have separate representation to avoid any possible conflict of interest with the lender's interest, for most transactions and most homebuyers, the interest of consumer and lender is usually aligned at this point. The likelihood is that most homebuyers are not aware of this dual responsibility on the part of the solicitor, and we would like to see more transparency at this point, with the letter of engagement from the solicitor pointing out the solicitor's dual responsibility to the lender.

Load more