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Verification of Identity

“The Sleeper Awakes” e-Conveyancing: The Right to Deal

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In e-Conveyancing, most of the focus to date has been on how to satisfy verification of identity (VOI) requirements. The VOI obligation is to take reasonable steps to verify the identity of each party to the conveyancing transaction.

However, when one examines the Model Participation Rules – Version 3 (MPR), it will be obvious that there are in fact two circumstances in which the representative of a party to a transaction must take “reasonable steps”.

Under the MPR:

  • reasonable steps must be taken to verify identity (MPR clause 6.5), and
  • reasonable steps must be taken to verify the right to deal (MPR clause 6.4).

The “right to deal” has always been present in the MPR, but to date has been very much a “sleeper” issue, because no specific guidance has been issued on how to fulfill the obligation to verify the “right to deal”.

It is fair to say that the “sleeper has awoken” with the release of a consultation draft of MPR Guidance Note #4 – Right To Deal on 22 September 2015 by the Australian Registrars’ National Electronic Conveyancing Council (ARNECC).

Feedback on the consultation draft is due by 31 October 2015.

What is the obligation in relation to the right to deal?

Clause 6.4 of the MPR states the following.

“6.4 Right to Deal

(a) where the subscriber is a representative, for each conveyancing transaction the subscriber must take reasonable steps to verify that its client is a legal person and has the right to enter into the conveyancing transaction.

(b) where the subscriber is a mortgagee, or the subscriber represents a mortgagee, for each mortgage the subscriber must take reasonable steps to verify that the mortgagor is a legal person and has the right to enter into the mortgage.”

The requirement to verify the right to deal is a twofold requirement, being:

  • that the person who is the party to the transaction is a “legal person” and
  • has the right to enter into the transaction/mortgage

In summary, we see the right to deal as being the right of a party to the transaction to deal with an interest in the land.

What’s changing?

In many ways, establishing the right of a party to deal in a property transaction is probably something both conveyancers and lenders have always undertaken intuitively as part of normal prudent conveyancing/lending practices.  However, what is now changing is that:

  • a new express legal obligation is created;
  • conveyancers and lenders must now consciously turn their minds to the issue of “right to deal”
  • records need to be kept for seven (7) years describing the process by which the right to deal in any given transaction was established
  • documentation evidencing the right to deal needs to be kept for seven (7) years and
  • liability will attach where reasonable steps have not been taken, or evidence to support the conclusion that a party has the right to deal with an interest in the land has either not been gathered or not retained.

Key issues from the consultation draft

The consultation draft issued by ARNECC itself illustrates how vexed an issue this is.  Specifically, the consultation draft notes the following issues:

1. When must the right to deal be verified?

The right of a party to a conveyancing transaction or a mortgage must be verified each time a transaction is entered into.

In addition, it is suggested that because verification of the right to deal is so closely linked to verification of identity that prudent conveyancing practice would be to conduct these processes simultaneously. I disagree with this suggestion.

2. How do you verify the right to deal?

Well, obviously one takes “reasonable steps”!

Any duly authorised person by an organisation can undertake that verification.

Unlike VOI, there are no provisions deeming that reasonable steps have been taken if specified steps are taken.

3. What are reasonable steps?

The draft guidance notes state that reasonable steps:

“When applied to subscribers and mortgagees … means the taking of such steps as an ordinary prudent subscriber or mortgagee would have taken in the circumstances and in the ordinary course of his or her business.  Whether “reasonable steps” were taken will be a question of fact depending on the circumstances of the individual case.  Ultimately this would be determined by a court on an objective basis.”

Supporting evidence needs to be sighted. That evidence must link the relevant party to the interest in land being dealt with.

4. Examples of the type of evidence that can be used to verify right to deal in particular circumstances

The draft guidance note gives guidance in connection with a number of scenarios such as:

A. Vendor and Mortgagor

Types of documentation which may be relevant here to verify right to deal include:

  • current local government rates notice
  • current utility bills for the property
  • current land tax assessment notices
  • loan documentation
  • existing mortgage and
  • title to the property.

Importantly, it is suggested that a title search should be obtained to check who is named as the registered proprietor of the land to ensure the correct person’s right to deal has been verified.  For lenders, this will be problematic because a title search is often only obtained late in the transaction, usually after external solicitors are instructed or the matter proceeds to the settlement department.

No “safe harbour” or deeming provisions to ascertain “reasonable steps” While there are safe harbour/deeming rules as to what constitutes taking reasonable steps to verify identity, there are no such deeming rules available for assessing what amounts to taking reasonable steps to verify the right to deal.

5. Supporting evidence

b. Incoming mortgagee

This is a difficult concept for lenders to grasp.  If a lender has a legal representative acting for them, then that representative will need to verify the right of the “lender” to take a mortgage over the property!  It is suggested that this can be done by the representative of the lender sighting a copy of the official loan documentation.

c. Purchaser

The obvious evidence where there is a purchase transaction is the contract of sale for the property showing the transferee as purchaser.

There is a specific obligation to retain supporting evidence (for 7 years) to show what steps you took to reasonably verify the right to deal.

It is unclear whether it is necessary to sight copies of original documents, or whether certified copies or plain copies are sufficient.

6. Special cases

Verification of right to deal in special cases is examined in the draft guidance note under the section headed “further considerations” at clause 5.7. These include examining what is required to verify the right to deal where the transacting party is:

  • subject to a trust
  • an insolvency event has occurred
  • an entity created or governed by statute
  • a successor at law to the registered owner
  • an executor
  • subject to guardian and administration legislation
  • acting under a power of attorney
  • an incorporated association

Does the requirement to take reasonable steps to verify the right to deal go too far?

At the end of the draft guidance note there is a section dealing with when further enquiries ought to be made. It strikes me that some of the circumstances mentioned and the further enquiries that should be made really go too far.  Consider the following:

  • if you are instructed to act for more than one person and only one person provides instructions then you need to contact all persons to confirm their instructions
  • where the transaction is urgent you need to enquire as to why the urgency
  • where the client has limited English you probably need to engage an independent interpreter
  • where the transaction involves a non-standard mortgage of an unencumbered title then one needs to make further enquiries
  • if you doubt your client’s mental capacity then you might need to obtain a medical certificate to verify that they have the capacity.
“Question:   How do I know that my client John Smith is the same John Smith that is the proprietor on title who has the right to deal? 

Answer:  What is reasonable depends on the circumstances … You should make further enquiries where doubt arises or should arise in relation to instructions and transaction.  For example, the purported transferor is too young to have purchased the property at the time it was purchased and therefore suspicion should arise that they may be John Smith Junior.”

 

This is an example Q&A provided in the draft guidance note.

Conclusion

Verifying the “right to deal” is a difficult concept. It is clear that there are no and can be no hard and fast rules as to what constitutes “taking reasonable steps” to verify the right of a person to deal with an interest in land in any given circumstance.

The fact that there cannot be any hard and fast rules makes it particularly difficult for lenders wishing to systematise their processes and procedures and to have tasks performed at a more junior level.

Investigations need to be conducted and subtle judgments made, neither of which sit comfortably with today’s modern banking practices which demand streamlined processes, standardised policies and procedures, speed and efficiency. It will be interesting to see how conveyancers and lenders deal with this issue in practice.

Victoria Broadens Verification of Identity Requirements for Paper-Based Conveyancing Transactions

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In September last year, new rules were introduced in Victoria requiring mortgagees/lenders to take positive steps to verify the identity of mortgagors/borrowers and their authority to deal with the land being mortgaged. These changes were introduced by the Transfer of Land Amendment Act 2014 (Vic).

At that time the Registrar of Titles in Victoria indicated the new requirements would not apply to general conveyancing transactions (sales/purchases) until after there had been consultation with industry. Consultation took place during the first part of 2015.

On 30 September 2015 the Registrar of Titles in the State of Victoria announced the introduction of verification of identity (VOI) requirements for all paper-based conveyancing transactions in Victoria, effective 9 November 2015.

The announcement was made in Customer Information Bulletins Editions 150 and 152. The new requirements are introduced by way of a determination made by the Registrar of Titles pursuant to section 106A of the Transfer of Land Act 1958 (Victoria).

The introduction of VOI requirements for paper-based conveyancing transactions in Victoria follows the prior introduction of similar requirements in Western Australia (June 2012) and South Australia (May 2014).

While lenders/mortgagees are familiar with and have worked with these new requirements for over a year now, the issue of “authority of a party to deal” is now more prominent than it was in 2014. See below for further comment on this issue.

The Registrar of Titles in Victoria has aligned VOI requirements for paper-based conveyancing transactions with those required under e-Conveyancing by adopting the ARNECC Model Participation Rules – Version 3 as the standard in Victoria.

The Registrar of Titles requirements also incorporates directions as to when certain transactions will need to be conducted electronically and lenders/mortgagees need to take note in this regard.

The timing for introduction of the new requirements in Victoria is as follows:

9 November 2015

Introduction of:

  • verification of identity requirements;
  • requirement to establish authority of a party to deal; and
  • evidence retention requirements.

1 December 2015

Introduction of requirement to verify identity of non represented parties.

1 August 2016

By this date some discharges of mortgage and mortgages must be lodged electronically, principally those involving approved deposit-taking institutions.

3 April 2017

Introduction of use of certifications and client authorisations.

Key points

Given that the new requirements of the Registrar essentially follow those contained in the Model Participation Rules, we don’t propose to analyse exactly what those requirements are – this having been done by us on previous occasions.

However, the following are of interest:

1. What is meant by the expression “new requirements commence on 9 November 2015?”

Some confusion has already arisen as to what the Registrar of Titles actually means by the statement that the new VOI requirements will commence on 9 November 2015.

Does that mean that all documents lodged at the Land Titles Office on or after that date must have undergone a verification of identity process, or does it mean something else? If the commencement date is determined by date of lodgement, that will affect transactions already in progress and arguably have retrospective effect.

Our enquiries with the Registrar of Titles indicate that the Registrar regards the expression “commence” to mean that all documents in a conveyancing transaction (eg. transfer of land, mortgage, power of attorney etc) signed by the party to the transaction on or after 9 November 2015 will be subject to the VOI requirements.

The Registrar of Titles is likely to issue a further customer information bulletin shortly clarifying this issue.

2. Authority to deal

This is another requirement that commences on 9 November 2015 and has thus far not taken centre stage in discussions and debate about e-Conveyancing, although this requirement has always been present as an issue in the e-Conveyancing process.

The Registrar’s guidelines (Guideline 3.2) require that on and as from 9 November 2015:

“3.2.2     For each conveyancing transaction a representative must take reasonable steps to verify that its client is a legal person and has the right to enter into the conveyancing transaction. 3.3.3      A mortgagee, or representative of a mortgagee, must, for each mortgage, variation of mortgage or transfer of mortgage, take reasonable steps to verify that the mortgagor is a legal person and has the right to enter into the mortgage.”

Unlike VOI requirements there is no deeming provision available with regard to verifying the authority of a party to the transaction to engage in the transaction.

The requirement to verify authority to enter into the transaction is a twofold requirement being:

  • That the person is a “legal person” and
  • Has the right to enter into the conveyancing transaction/mortgage.

We will consider this further and issue a further update about this.

3. Verification of identity of non-represented parties

This requirement commences on 1 December 2015 as stated above. This requirement is unique to paper-based transactions in Victoria.  Under e-Conveyancing persons acting for themselves will not be able to access the electronic conveyancing system directly.

What the Registrar of Titles is saying about this requirement is that a person acting for themselves in a conveyancing transaction will need to visit an “authorised identity agent” and have that identity agent verify their identity, before any documents signed by them will be accepted.

There is also an additional requirement for unrepresented parties – not only will the authorised identity agent have to verify the identity of the non-represented party, but the identity agent will also have to witness the signature of the non-represented party on the transaction document.

Presumably, evidence of VOI will need to be provided to the Registrar of Titles at the time a document is lodged for registration.  No doubt the Registrar of Titles will clarify this aspect of the matter. A stamp affixed to the transaction document by the identity agent may suffice.

Please note that this requirement does not apply to mortgagors. Lenders/mortgagees are responsible for verifying the identity of mortgagors.

The new procedures and policies will apply across the board to all conveyancing transactions in Victoria.  The Law Institute of Victoria is running a number of major seminars to make sure that practitioners in Victoria are up to speed on the changes – including the upcoming session on “Preparing for new VOI requirements” on 26 October 2015.  The writer will be a member of the discussion panel on the day.

E-conveyancing: Verification of Identity Changes, What a Relief

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Version 3 of the Model Participation Rules (MPR) removes the nexus between verifying identity and witnessing transaction signatures.

Lenders and those involved in the finance industry will be greatly relieved by the Australian Registrars’ National Electronic Conveyancing Council (ARNECC)  release of Version 3 of the MPR for electronic conveyancing.

We alerted readers to the review in our article published 25 March 2015.

The matter that was of great concern to us in March was the proposal to amend the MPR for electronic conveyancing to require the person verifying the identity of a party to a conveyancing transaction to also witness that person’s signature on the transaction documents.

For lenders that would have created a massive disruption to current procedures. Lenders generally verify the identity of the customer at an early date and only later require the customer to sign transaction documents, in particular the mortgage. Fortunately the final of Version 3 of the MPR removes the nexus between verifying identity and signing transaction documents.

Any reference to witnessing signatures has now been removed from the relevant provision in Schedule 8 to the MPR:

2 Face-to-face regime

2.1 The verification of identity must be conducted during a face-to-face in-person interview between the Identity Verifier and the Person Being Identified.

2.2 Where Documents containing photographs are produced by the Person Being Identified, the Identity Verifier must be satisfied that the Person Being Identified is a reasonable likeness (for example the shape of his or her mouth, nose, eyes and the position of his or her cheekbones) to the Person depicted in those photographs.

Another change made by ARNECC is to allow Australian passports that have expired within the past two years to be acceptable as a form of identification, along with foreign passports without evidence of an Australian resident visa.

But debate is not over yet. Attention will now focus on bringing the various states and territories into line to make sure they adopt verification of identity standards consistent with the MPR.

Proposed Changes to Verification of Identity Requirements – Will Lenders Ever Find “safe harbour”?

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ARNECC (Australian Registrars’ National Electronic Conveyancing Council) is proposing changes to the Model Participation Rules for Electronic Conveyancing, which if implemented will make it more difficult for lenders to rely upon the safe harbour rules prescribed in relation to verification of identity requirements for property transactions. A consultation period concluded at the end of February and stakeholders are awaiting an outcome.

The significance of these proposed changes

In recent years land titles offices in Western Australia and then South Australia introduced verification of identity (VOI) requirements for paper-based property transactions.

More recently Victoria and New South Wales have followed suit.

In the lead-up to the implementation of electronic conveyancing (e-conveyancing), VOI requirements were set out in the model participation rules introduced under the new electronic conveyancing national laws.

What are VOI requirements?

For lenders, VOI requires the lender/mortgagee to take reasonable steps to verify the identity of proposed mortgagor (normally one and the same as the borrower).

For general property transactions, parties to the transaction are also required to take “reasonable steps” to verify the identity of the parties to the transaction, such as vendors and purchasers.

What amounts to taking “reasonable steps” in any given situation is uncertain and is dependent upon a whole range of circumstances and factors.

Safe harbour to the rescue

Governments have come to the rescue of parties to a property transaction by providing a “safe harbour” mechanism.  By this they mean that mortgagees/lenders (and other parties to a property transaction) will be deemed to have taken reasonable steps to identify a party to the transaction if they follow certain specified steps as set out in the legislation, manuals or model rules.

If a party to a property transaction follows the specified safe harbour procedures, then they are deemed to have taken reasonable steps to verify identity and are protected from claims if the transaction is later found to have been fraudulent or otherwise flawed due to matters such as stolen identity.

This has become a critical issue.

Lenders will normally verify identity at the time application is made for a loan. Yet, the loan contract and mortgage documentation might not be prepared until sometime later.

Western Australia

As mentioned above, Western Australia was the first state to introduce what we call the modern form of verification of identity requirements.

The West Australia requirements are set out in Chapter 14 of the Land Titles Registration Practice Manual issued by Landgate.

Importantly, in Western Australia, a lender does not need to identify the mortgagor/borrower at the time that person executes the mortgage documentation. In other words, the person identifying the mortgagor/borrower does not have to witness the signature of that person on the transaction document.

The Landgate Manual states at page 507:

When Verification of Identity Must Occur 14.4.3

Verification of Identity is to be undertaken at any time after receiving instructions and before execution of a document to which this Practice applies.

Identification and execution of the documents may not necessarily occur at the same time. However, it is essential that the verification of identity has occurred before the documents are lodged for registration or noting.

Ideally, verification of identity should occur immediately prior to the execution of the document, so that the Identifier and witness, (if a witness is required), are the same person.

The Registrar of Titles and Commissioner of Titles consider that verification of identity immediately prior to execution of documents provides for the lowest risk of potential fraud.

As to category 4 documents, where a Declaration of Identity is being used as an identity document, Verification of Identity of the person making the Declaration of Identity (refer to 14.4.5.1.2) should take place:

  • at the time of execution of the Declaration of Identity,and

  • before the Verification of Identity of the person relying on the Declaration of Identity as an identity document.

So, in Western Australia, while the Registrar suggests VOI be conducted close to the time of execution of the transaction documents – it is not a requirement, except in the case of category 4 verification.

When should verification of identity be carried out?

The situation under e-conveyancing

Under e-Conveyancing, it was initially assumed that similar types of rules to those applicable in Western Australia would apply. Certainly the categories of identity documents that need to be obtained in order to rely upon the safe harbour procedures are generally the same.

However, it is now clear that ARNECC (Australian Registrars National Electronic Conveyancing Council) is taking the position that before the safe harbour rules may be relied upon, the person identifying a party to a transaction must also witness their signature on the mortgage document or “client authorisation”.

The relevant model participation rule was previously somewhat ambiguous on this issue.

ARNECC has recently engaged in a consultation process with industry on proposed changes to the Model Participation Rules. The consultation period has now closed.  What ARNECC are proposing is to amend the Model Participation Rules dealing with verification of identity requirements to read as follows:

2. FACE-TO-FACE REGIME

2.1. The verification of identity must be conducted during a face-to-face in-person interview between the Subscriber and the Person Being Identified.

2.2. Where Documents containing photographs are produced by the Person Being Identified, the Subscriber must be satisfied that the Person Being Identified is a reasonable likeness (for example the shape of his or her mouth, nose, eyes and the position of his or her cheek bones) to the Person depicted in those photographs.

2.3. Except where paragraph 8.1(b) or (c) of this Verification of Identity Standard applies, where a Client Authorisation, Registry Instrument or other document is required to be executed by the Person Being Identified, the Subscriber who is conducting the verification of identity in accordance with this Verification of Identity Standard must ensure that the completed Client Authorisation, Registry Instrument or other document is signed in the same interview:

(a) by the Person Being Identified in the presence of the Subscriber; and

(b) by the Subscriber.

In practice, this makes it most difficult for lenders to rely upon the “safe harbour” mechanism for reasons outlined above.  A lender normally verifies identity at an early stage of a lending transaction, well before the mortgage documents are prepared for execution.

Ramification of changes, if implemented

These changes, if implemented, will have broad ramifications for the finance industry and all participants, including those external service providers who offer a verification of identity service.  If implemented, those external service providers will not only have to verify identity but will have to provide a service under which they witness the actual transaction documents signed by the party to the transaction.

These changes, if implemented, will not only affect e-conveyancing transaction, but paper-based property transactions in Victoria and New South Wales, because their VOI requirements are based on the Model Participation Rules, as amended from time to time. It is important to note as well that in Victoria the property legislation itself contemplates identification at the time of execution in any event. See section 87A of the Transfer of Land Act 1958 (Victoria). The situation in New South Wales might also be further complicated because the definition of ‘eligible witness” in section 117(4)(b) of the Real Property Act 1900 (NSW) excludes a party to the transaction, in this case, the mortgagee.

What lenders need to do

All lenders need to be aware of these developments and give consideration to how they will deal with the situation, if the proposed amendments to the Model Participation Rules take effect. Third party suppliers will need to review their service offering.

Update on Implementation of VOI Requirements for Paper-Based Mortgages

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In the lead up to implementation of electronic conveyancing, various states are introducing new verification of identity (VOI) requirements for paper based mortgage and property transactions to achieve alignment with the VOI requirements for electronic transactions.

What is clear is that even after electronic conveyancing is rolled out, there will be a lengthy transition period during which paper based transactions will co-exist with electronic transactions.

VOI rollout

Western Australia introduced verification of identity (VOI) requirements for paper-based mortgages some years ago. South Australia introduced similar (but not identical) requirements more recently.

Importantly, Victoria has just introduced VOI requirements for all mortgage transactions (including paper-based) – with virtually no prior notice of the implementation date. New South Wales will change its existing VOI requirements for mortgages from 1 January 2015. Queensland will no doubt follow suit.

In the lead up to the implementation of electronic conveyancing, other states and territories will progressively introduce VOI requirements for paper-based transactions, generally consistent with the Participation Rules under the new Electronic Conveyancing National Laws.

In November 2013, a consultation paper was issued by the Registrar of Titles in Victoria, titled “Aligning Paper and Electronic Conveyancing Requirements”, suggesting how Victoria wished to align its position to that of New South Wales and Queensland with regard to identification of mortgagors in property transactions.

The current position in Victoria, New South Wales and Queensland is set out below:

1. Victoria

New requirements for mortgagees/lenders to take positive steps to verify the identity of mortgagors/borrowers and their authority to deal with the land being mortgaged were introduced in Victoria on 24 September 2014 by the Transfer of Land Amendment Act 2014 (Vic). These amendments apply to all mortgages under the current paper-based system and also those registered electronically.

This amending Act requires a mortgagee to properly verify the authority to deal and the identity of a mortgagor by taking “reasonable steps” at the time of execution of a mortgage, variation of a mortgage or transfer of a mortgage.

To assist mortgagees/lenders, the amending Act contains a safe harbour mechanism – in other words, mortgagees/lenders will be deemed to have taken reasonable steps to identify a mortgagor if they follow certain procedures detailed in the amending Act.

A mortgagee is able to claim the benefit of safe harbour and is deemed to satisfy the onus imposed on it to take “reasonable steps” in one of two ways, by:

  • following the procedure set out in any determination made by the Registrar of Titles in Victoria under section 106A of the Act as to what constitutes reasonable steps (no determinations yet made), or
  • following the procedures for identification set out in the Participation Rules made under the Electronic Conveyancing National Law.

These are referred to as the “safe harbour procedures”.

Reasonable steps and safe harbour

The safe harbour procedures in Victoria under the Participation Rules are essentially the same as those adopted in South Australia.

A mortgagee/lender can of course establish its own procedures which it considers amounts to taking “reasonable steps”, but if a fraud occurs, the mortgagee/lender then has to prove that its own steps were reasonable steps and would not be able to take advantage of the presumption which operates in its favour had it identified and verified the mortgagor in accordance with safe harbour procedures.

If a fraud occurs and loss is suffered and the lender/mortgagee is found not to have taken reasonable steps to verify the identity and authority to deal of a mortgagor/borrower then the Registrar of Titles may:

  • refuse to register the mortgage, if it has not already been registered;
  • if the mortgage has already been registered, remove the mortgage from the register book.

Where the Registrar of Titles removes the mortgage from the register book then:

  • the mortgagee/lender no longer has an indefeasible interest in the land; and
  • the mortgage is void.

As mentioned above, similar requirements also apply in the case of a transfer of mortgage. The incoming mortgagee must take reasonable steps to confirm that the original mortgagee verified the identity of the mortgagor/borrower, or take reasonable steps themselves to verify the identity and authority of the mortgagor.

The Registrar of Titles has not yet issued any determination under section 106A of the Transfer of Land Act as to what constitutes taking “reasonable steps”, even though we understand that various industry associations are pushing for a determination to allow a period of grace to comply. In the absence of any such determination, the Participation Rules for Electronic Conveyancing must be followed if the mortgagee/lender seeks the benefit of safe harbour.

Land Victoria, in its customer information bulletin issued in August 2014, implied that these new requirements would not come into effect until July 2015, which is likely to be true for transfers of land, but has been brought forward to 24 September 2014 for mortgages. See below.

“The Registrar will be introducing requirements for formal identity verification for all paper instruments lodged on or after 1 July 2015 … Land Victoria will consult with industry representatives over the next 6 months about the implementation of verification of identity requirements, as well as other implementation issues raised in the consultation feedback … the Registrar will also set out a verification of identity standard that, if followed, will be deemed to constitute reasonable steps. Timely advice about the Registrar’s requirements will be provided to Land Victoria’s customers prior to implementation … “.

What should a mortgagee/lender do in the present circumstances?

Lenders/Mortgagees are well advised to follow the verification of identity requirements contained in the Participation Rules (version 2 – issued April 2014) when documenting a paper-based mortgage transaction, so as to be able to claim the benefit of safe harbour. Of course, a mortgagee/lender can always establish its own procedures and claim them to be taking “reasonable steps”, but there would have to be good reason to do so given the absence of the benefit of safe harbour in those circumstances.

2. New South Wales

On 1 September 2014, the Real Property Regulation 2014 commenced operation.

There are many changes implemented by the new regulation as outlined by Land and Property Information (NSW) in its circular issued in May 2014 (circular 2014/06).

Land and Property Information (New South Wales) has announced that all the changes previously announced will go ahead, except for the changes to the standard verification of identity which will not commence operation on 1 September 2014, but instead will take effect from 1 January 2015.

New South Wales is adopting the national verification of identity standard that applies in electronic conveyancing situations where a mortgagee/lender seeks to claim the benefit of safe harbour when identifying and establishing the authority of a mortgagor. In other words, the standard set out in the Participation Rules.

That standard is set out in Schedule 8 of the New South Wales Participation Rules. As readers would be aware the standard requires a mortgagee or its agent to conduct a “face to face” interview with the person being identified, who must produce original documentation to establish their identity.

It is proposed the standard set out in the Participation Rules will be national and therefore there will be convergence with Victoria and South Australia – with other states and territories likely to follow suit shortly.

In New South Wales, between now and January 2015, mortgagees/lenders will need to assess the impact of the change in NSW and implement internal procedures to meet the new standard.

Until that time in New South Wales, most mainstream mortgagees/lenders will be able to continue with current identification practices in order to be able to claim the benefit of safe harbour, which are of course based on the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Commonwealth). This will continue to apply until 31 December 2014. For non-mainstream lenders, refer to:

  • Regulation13 – Confirming identities of mortgagors who are natural persons (until 1 January 2015)
  • Regulation14 – Confirming identities of mortgagors that are bodies corporate (until 1 January 2015)
  • Regulation15 – Mortgages executed under power of attorney (until 1 January 2015).

3. Queensland

Queensland has had verification of identity requirements for many years. These are contained in section 11A of the Land Title Act 1994 and section 288A of the Land Act 1994. This places an onus on all mortgagees to adopt appropriate due diligence practices prior to lodging any mortgages for registration. Traditionally mortgagees/lenders have been able to comply by adopting the same procedures as set out in the Commonwealth legislation, Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Commonwealth).

Queensland will proceed to adopt the National Electronic Conveyancing Participation Rules in due course, at which time amendments to the Queensland legislation and the Land Titles Practice Manual (Queensland) no doubt will be made.

Currently, no changes need to be made by lenders/mortgagees in relation to their dealings with Queensland paper-based mortgages.

South Australia – Verification of Identity Policy

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Further to our email alert on 15 May 2013,  the Registrar-General of South Australia has on the 24 June 2013, released a final version of the Verification of Identity (VOI) policy. This was after a process of public consultation.

The Registrar-General states that the VOI policy is being introduced for documents affecting South Australian land that was executed on or after 1 July 2013.

However, given the lateness of the release of the final policy, the Registrar-General has decided to implement a six-month transitional period to enable the industry to make any changes required to their systems and processes.  Full compliance will only be required for South Australian land documents executed on or after 1 January 2014.

The South Australian VOI policy is similar to the West Australian VOI policy.  However, the policy document issued by South Australia is not as detailed as the West Australian policy document. We have updated the comparison table of VOI policies and processes in the various jurisdictions in Australia (which was previously provided to you with our earlier alert) for your reference.

With the introduction of the VOI policy, liabilities are imposed upon lawyers, conveyancers, lenders and their agents to make sure the identity of the signatory to a dealing with land is properly verified. It is now time to put systems and processes in place to achieve compliance as soon as possible. This includes determining whether verifying agents need to be appointed.