Digital Conveyancing: one step closer

In the February 2017 Housing White Paper, the government expressed its ambition for HM Land Registry (“HMLR”) to become “the world’s leading land registry for speed, simplicity and an open approach to data”. A public consultation was opened on 9 February 2017 on proposed changes to the Land Registration Rules 2003, in order to fulfil the commitment in the Housing White Paper.

The consultation proposes “to allow for the introduction of fully digital conveyancing documents with e-signatures to be used for land transactions and land registration, and to revoke existing rules allowing only limited digital mortgages”. Currently, conveyancing transactions must be carried out on paper with ‘wet ink’ signatures being applied to physical, paper documents.

The government published its response to the consultation in January 2018 and confirmed that the Land Registration (Amendment) Rules 2018 will be implemented on 6 April 2018. Once implemented, the new rules will allow (as opposed to making it compulsory) for any disposition of land which must be registered at HMLR to be carried out using digital documents with electronic signatures.

How will it work?

An electronic signature must be:

1. uniquely linked to the signatory;
2. capable of identifying the signatory;
3. created using electronic signature creation data that the signatory can, with a high level of confidence, use under their sole control; and
4. linked to the data signed in such a way that any subsequent change in the data is detectable.

Electronic signatures are incapable of being witnessed, as an electronic document is a collection of data in a computer system and the electronic signature is another string of data attached to it. A ‘witness’ only sees an electronic document as represented on a computer screen and cannot be sure what data an electronic signature has been applied to. Electronic signatures therefore rely on trust service providers which certify the identity of the person who is signing the document and the integrity of the data that has been signed. Trust service providers serve a similar function to a witness.

As part of the digital conveyancing process, HMLR will be a trust service provider and will be subject to EU Regulation 910/2014 (the “Regulation”) which sets the standards, responsibilities and liability for trust service providers. Electronic signatures will consequently have legal effect and admissibility as evidence in legal proceedings. However, as this is an EU Regulation and Brexit is on the horizon, there is an element of uncertainty as to the future regulation of electronic signatures and trust service providers.

The consultation response states that the government cannot predict what will happen after Brexit, but implies that electronic signatures will continue to have legal effect and admissibility as it appears that the Regulation will be transposed into British law under the proposed Great Repeal Bill.

Susceptibility of digital conveyancing to fraud

The introduction of digital conveyancing raises a number of concerns, in particular, the susceptibility of digital conveyancing to fraud and identity theft.

In response to these concerns, the government has confirmed that identity assurance for individuals using digital conveyancing will be provided by the Gov.uk ‘Verify’ service. It is envisaged that identity assurance for corporate bodies will be provided by a new Government Gateway Service (GG3) currently being developed by HMRC. The consultation response confirms that alongside modernising and streamlining land transactions, the prevention of fraud underpins digital conveyancing as the systems and procedures used will result in digital transactions being more secure than paper transactions. With paper transactions, HMLR only receives the transaction for registration once it has been completed, whereas digital transactions will be prepared within HMLR’s databases using secure access platforms. Consequently, digital transactions will benefit from robust cyber-security throughout the transaction.

Conveyancers and lenders will not be absolved of their duties under the Money Laundering Regulations as a result of parties opting to use digital conveyancing. The use of Verify as part of the digital conveyancing process will be in addition to the usual money laundering checks carried out by conveyancers and lenders. As such, digital conveyancing will bring an extra level of verification into the conveyancing process.

Service capability

Another concern associated with digital conveyancing is service capability. As digital conveyancing will take place within HMLR’s databases, it will rely on the service capability of HMLR’s systems. The consultation response provides assurances as to the resilience of and spare capacity built into HMLR’s internal and external infrastructure to enable digital conveyancing to be faster and more efficient than paper conveyancing. However, it goes without saying that the unavailability of HMLR’s systems would bring digital conveyancing to a (most likely, unexpected) halt.

What will happen on 6 April 2018?

In practice, there may be no obvious change on 6 April as the new rules simply allow HMLR to introduce fully digital conveyancing in the future. Systems need to be built to enable digital conveyancing to take place. The Chief Land Registrar will give notice once he is satisfied that adequate systems have been built to allow conveyancing to be carried out online safely and securely, and once notice has been given, digital conveyancing will still be optional: parties to a transaction will continue to have the option of using traditional, paper-based conveyancing. Essentially, the Land Registration (Amendment) Rules 2018 provide the green light for digital conveyancing, rather than the reality.

It is worth noting that the new rules only apply in England and Wales – there is no change to the current position in Scotland.