An explanation on what it is and what is currently happening
The Australian Registrars National Electronic Conveyancing Council (ARNECC) is pursuing the development of interoperability between Electronic Lodgement Network Operators (ELNO’s).
Currently, there are two ELNO competitors in the market - PEXA and Sympli.
Interoperability is to enable subscribers (settlement agents, lawyers or banks) to have the choice of ELNO’s and for ELNO’s to be able to operate in the one settlement transaction without subscribers being forced to be a member of each.
This will enable competition in the ELNO marketplace as required by the Australian Competition and Consumer Commission (ACCC).
ARNECC is informed by the National Industry Interoperability Panel (Panel) comprising of Registrars and jurisdictional experts, representatives from the Law Council of Australia, Australian Institute of Conveyancers, Australian Banking Association, ELNOs, the major four banks, a number of second tier banks and private land title registry operators. The ACCC is observing this consultation process, and the Digital Transformation Agency is a member of the Panel’s technical working group.
To enable interoperability, ARNECC is focussed on the following identified streams:
- Regulatory regime
- Technical systems
- Security of data risk
- Financial settlement
- ELNO Agreements
ARNECC consults at a national level on all the above issues, with Mr Dion Dosualdo representing the Australian Institute of Conveyancers (AIC) at this level. The Law Council of Australia as represented by Mr Phillip Argy has also been consulted.
ARNECC has released draft version 7 of the Model Participation Rules and explanatory notes which can be viewed on the ARNECC website. Written submissions can be made to firstname.lastname@example.org. The consultation period closes on 6 September 2021.
To ensure the legal requirement for interoperability, changes to both the Electronic Conveyancing National Law (ENCL) and Model Operating Requirements (MORs) are required. These changes will essentially define and mandate the requirement for ELNO’s to take reasonable steps to interoperate with each other.
If the ELNO’s cannot reach an agreement, there will be dispute resolution processes and procedures in place. In addition, the regulatory regime will ensure that each ELNO does not discriminate in terms of service between the transactions conducted wholly on its own network and interoperable transactions.
Western Australia (WA) currently has its own Electronic Conveyancing Act 2014 (the Act) as a corresponding law to the ECNL. The Act mirrors the legal requirements contained in the ECNL and applies it to WA law.
Landgate is seeking the approval of the Western Australian State Cabinet to join the national law scheme to streamline the process where we will not be required to continually update the Act when changes are made to the ENCL.
If approved, this will bring about the repeal of the Act and an Adoption Act, which will adopt the ENCL into the laws of WA. As you may recall, the ENCL is a law which is created by the New South Wales (NSW) Parliament and adopted by the participating jurisdictions around Australia. If approved, WA will become one of those participating jurisdictions.
There are two key issues upon which interoperability depends:
- the fees that ELNOs can charge for performing lodgment and settlement: in an interoperable transaction, one ELNO (the ‘Responsible ELNO’) will be responsible for lodgment and settlement. The proposed changes to the ECNL permit Registrars to regulate the fee amount which is charged (this also covers whether ELNOs can charge a fee).
- extending the reliance regime; in an electronic conveyance, the parties rely on instructions given and documents signed using a digital signature. The ECNL currently provides a “reliance regime” which, in effect, allows each party to the transaction, their Subscriber, a person claiming through a party, and the Registrar to rely on that digital signature. The proposed amendments extend this regime to cover interoperable transactions, in particular the instructions for financial settlement and must benefit financial institutions and other ELNOs participating in the transaction.
Another major change in the regulatory regime will be the creation of an Enforcement Regime where there are breaches of either the ECNL, the MOR or the Model Participation Requirements (MPRs). This is required because the current legislative regime is not practical where ELNO’s or subscribers breach the provisions of the ECNL, MOR and MPR.
Under the current enforcement regime, where there is a breach of these provisions, Registrars only have the option to suspend or terminate the operation of ELNO’s or subscribers within the electronic conveyancing system. This is regarded as too blunt an instrument and there needs to be an enforcement mechanism that enables steps to occur to ensure that the correct behaviour is occurring rather than termination for breach of relevant provisions.
ARNECC has a paper on its website detailing some of the options that can be used for enforcement. These options are currently being developed into the legislative regime. Feedback is being sought at a national level on these provisions.
Key issues to be resolved
Enforcement regime: The proposed enforcement regime needs to be reviewed by Justice departments in all jurisdictions offering eConveyancing.
Authorisations from trust accounts: the issue is how lawyers and conveyancers authorise withdrawal of funds from their trust account in a multi-ELNO environment, when they do not have a contract with a Responsible ELNO, who is providing these instructions to the lawyer or conveyancer’s financial institution.
In a single ELNO world, PEXA Ltd provides a contractual solution among the relevant subscribers, their financial institutions and PEXA Ltd itself. A contractual solution is potentially more complicated in a multi-ELNO environment as all parties would need to know all other parties have the appropriate provisions in their contracts, and implementing this may require banks and ELNOs to update thousands of contracts.
Stakeholders have proposed updating the ECNL, another alternative is to update trust account legislation. This issue is still being reviewed and needs to be settled as part of the interoperable changes. A paper has been provided to the AICWA, Law Council of Australia, the Law Society of WA and the WA Legal Practice Board for their consideration.
Since January 2021, ELNOs have worked closely with Government to develop the technical specifications for Interoperability and great progress has been made. ELNOs have been collaborating to develop data standards, Application Programming Interfaces (API), technical architecture and associated documentation to facilitate interoperability, meeting several hours each week in the Interoperability Operations Committee.
The proposed solution allows data from multiple Electronic Lodgment Networks (ELNs) to be aggregated by a single ELN for financial settlement, duty assessment and lodgment with Land Registries. A common data standard will be used for communication between ELNs that will be specified, along with other business requirements, in an API specification.
This technology approach has been designed to ensure cyber security to the greatest extent possible, and at least offer as much security as for transactions conducted on a single ELN.
The diagram above visually depicts the API system actions that will enable interoperability between ELNOs and the description beneath provides further information.
- Subscribers will be able to transact on the ELNO of their choice.
- One ELNO will be designated as the Responsible ELNO (see green box in the centre referring to the Responsible ELNO’s role) this ELNO will interact with Land Registries and Revenue Offices (see lines to the Revenue Office and Land Registry). The Responsible ELNO will also lodge documents and instructions with financial institutions (see lines to financial institutions and the RBA). Other ELNOs are designated as “Participating ELNOs” (see blue boxes above), who will rely on the Responsible ELNO to orchestrate the transaction.
- The Responsible and Participation ELNO roles will be determined by a set of system rules.
- The APIs will be used to provide updates between ELNOs – when there is more than one Participating ELNO, the Responsible ELNO will disseminate information across Participating ELNOs (see green arrows between the different ELNOs).
- Once data is received by an ELNO, it applies its own business rules to the information - in effect ensuring that system users see the same information and have the same experience they would have in a single ELNO transaction.
One of the key areas where further work needs to be undertaken is addressing impact of this model on stakeholders primarily being Land Registries, Financial Institutions and Revenue Offices which will need to review the impacts to their systems for an interoperability transaction. While the work has been designed to reduce the amount of change, each of these recipients will need to assess whether any changes are required to be made.
Security of data risk
Data security is absolutely fundamental to interoperability. There is an additional data flow between ELNOs and in some cases between the Responsible ELNO and subscribers. A great deal of effort is being expended on the issue of security of data flows to prevent corruption of data and cyber attacks.
Registrars do not have the legislative power to regulate financial settlements. This is province of the financial regulators.
However, a number of other committees are supporting the reforms to the eConveyancing regulation, particularly as it relates to financial transactions:
- The Australian Banking Association’s Payments system group: chaired by the Australian Banking Association (ABA), with banks, ELNOs and jurisdictions to identify regulatory and technology issues that need to be addressed for interoperability.
- The RBA’s eConveyancing regulation working group: chaired by the Reserve Bank of Australia (RBA), with officials representing ARNECC, Australian Securities and Investments Commission (ASIC), the Commonwealth Treasury and the ACCC as an observer. This working group reviewed gaps in the regulatory framework relating to the financial settlement processes, including consumer issues.
The working group has proposed an industry self-regulation model, comprising an industry Code among ELNOs and financial institutions to be established by Australian Payments Network Limited (AusPayNet). This is a similar approach used with other financial payment systems, such as credit cards.
The working group reported to the Council of Financial Regulators (CFR) (comprising the RBA, Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Commonwealth Treasury, with the ACCC as an observer).
On 11 June 2021, the CFR confirmed that it supports the proposed Code, and expects it to be finalised by September 2022, subject to any necessary authorisations by the ACCC.
AusPayNet’s eConveyancing Payment Steering Committee: chaired by AusPayNet, with representation from ELNOs, the major four banks, Australian Standards Limited, the RBA and ARNECC. This group will design the Code proposed by the eConveyancing regulation working group, described above.
ARNECC proposes the ECNL be amended to permit Registrars to determine operating requirements. This will require ELNOs to demonstrate compliance with certain matters in connection with an associated financial transaction.
AusPayNet is coordinating with banks and ELNOs to develop an industry self-regulatory Code (the Code). The proposed provision would mean ARNECC could nominate the Code through the MOR, once the ECNL amendments take effect. ARNECC’s involvement would be limited to requiring potential ELNOs to join the Code, when applying for approval.
- The requirement could be satisfied by a Potential ELNO providing, as part of the ELNO application process, a letter or other documentation from AusPayNet confirming membership of the Code.
- Breaches of the code by an ELNO would be dealt with by AusPayNet / other Code members, in accordance with the Code. This may include sanctions under the Code.
- Certain sanctions under the Code may trigger a notification from AusPayNet to ARNECC. ARNECC would then decide if it needs to take any separate enforcement action against the ELNO, under the ECNL or MORs.
ELNO’s at a practical level will need to come to an agreement themselves as to how they will operate together which will largely fall outside of the regulatory regime.
These agreements are currently being worked on and ARNECC is providing guidance as to the nature of provisions that it would like to see in the agreements as well as providing information as to what will be contained in the regulatory regime. This is a work in progress.
As you can see form this document, there are many moving parts to interoperability that are required to come together to enable it to occur.
ARNECC are working towards the following timeline:
- July 2021: releasing draft Model Operating Requirements for consultation.
- Aug/Oct: release draft ECNL to industry with decision on Regulatory Impact Statement; all jurisdictions to finalise governmental approvals.
NSW intends to table the Bill in Parliament, once all jurisdictional government approvals have been obtained.
- December 2021 or first quarter 2022 calendar year: first interoperable transaction, refinance a property in Queensland.
- 2022: implement interoperability across all documents and jurisdictions that support eConveyancing.
Through ARNECC, Land registries are focused on enabling all the relevant parts to come together with a view to enabling the first interoperable transaction in Queensland by December 2021.
Much like what we did when we implemented the National Electronic Conveyancing System in 2014, the subsequent transactions that can become interoperable will be developed in 2022. The focus will be on the top seven transactions that comprise nearly 70 per cent of all transactions lodged at the land registry, these will include transfers, mortgages, discharge of mortgages, caveats, withdrawal of caveats, transmissions and survivorships. It is too early to consider any specific timeline for these transactions, but we are on that pathway.
Registrar of Titles
12 July 2021