Hi Community,
Thank you for attending last week’s interoperability webinar. Here are more detailed answers to the questions raised with us than we had time to cover during the session.
Does PEXA support interoperability?
We do not see interoperability as a prerequisite for competition – however, we are open to it in principle. Whichever model is chosen, it must not raise cost, risk and/or complexity for industry or consumers.
What are the criteria for a good interoperability model?
If an interoperable model is chosen, it must deliver clear net benefits to consumers, network participants and the industry. In other words, it must not:
impose additional cost (which is likely to be passed on to consumers);
increase risk to titles registers or in financial settlement;
create additional liability for network participants; or
make it difficult to assign accountability if something goes wrong.
It should also be a nationally consistent model to meet COAG’s objectives for econveyancing, preserve economies of scale and enable seamless transaction processing for participants who operate across jurisdictions.
What interoperability models are being considered?
While no national model of interoperability is under active consideration, a review commissioned by the NSW Office of the Registrar General has explored various models including:
separate, synchronised workspaces (two PEXA-like platforms);
shared settlement infrastructure (a single settlement platform and multiple front-end ELNOs); and
lodging ELNO workspace (two PEXA-like platforms, but only one workspace per transaction, held with the ‘Lodging ELNO’).
Why should I care about interoperability or competition?
Because a level of competition has emerged in the ELNO market — and if it is coupled with some form of mandated interoperability, it will change the way you work. If the interoperability model chosen increases cost, risk and/or complexity — and we believe the models proposed so far may do so — then consumers and the industry will not enjoy the full benefits of the effort we’ve all already invested in digital transformation.
Won’t two, interoperable, PEXA-like platforms deliver innovation benefits?
Unfortunately, the opposite could be the case. In a separate synchronised workspace model, both platforms would need to develop in the same way at the same time. A significant innovation by one ELNO would have to be agreed and mirrored by the other to make sure information exchange between platforms stayed synchronised in real time. In this scenario, investment in innovation would deliver no competitive benefit and would more likely stifle innovation than encourage it.
How would innovation work in your model of interoperability?
We don’t have a preferred interoperability model but we are working with stakeholders and regulators to better understand what model would meet all the criteria we set out above. PEXA has invested heavily in innovation from inception, but we are unlikely to be able to innovate so swiftly and comprehensively in an interoperable environment.
We keep hearing interoperability is easy, Is that true?
It’s true that finding a way to make systems ‘talk to each other’ might be possible, but that’s not the hard part. Electronic conveyancing involves collaboration and interactions between parties from end to end of a transaction, rather than each party working in its own silo with data exchange on the day of settlement (which led to errors and delays in paper settlements). All the interactions in econveyancing would have to be redesigned for interoperability, requiring a complete rethink of the liability framework. Independent risk management advisory firm Willis Towers Watson has provided preliminary advice that interoperability may be or become uninsurable, raising huge red flags around risk. Existing Participation Agreements would need significant changes and, if a problem occurred, determining responsibility could lead, at the very least, to settlement delays. You can find a copy of that report here (page 63 onwards).
Is PEXA just trying to slow things down?
We welcome competition and we are actively participating in all working groups and with industry to find the best framework for consumers and the broader industry. We will support any model of interoperability that does not introduce new costs, risk and complexity.
What is PEXA’s view of regulation around ELNOs providing conveyancing services?
We strongly support strengthened regulation to prevent ELNOs from competing against practitioners for conveyancing work.
Will there be a large number of ELNOs with OR WILL THE NUMBER BE CAPPED?
This is an issue for ARNECC but in our view capping the number of potential providers makes no sense if a competitive market is the objective. Ironically, interoperability could hamper competition by discouraging new ELNO entrants, as it would not allow them to create a marketable ‘point of difference’. It might also provide a financial disincentive, as new players would need to build connections and provide real-time synchronisation with all other ELNO systems. Whatever the final number of ELNOs, they are very likely to have different functionalities, at least in the short to medium term. Like PEXA, new ELNOs will build capabilities over time and that will affect the functionalities they offer.
do you accept interoperability is required to prevent a private monopoly?
We have always anticipated and welcomed competition but creating what is essentially another PEXA won’t create a vibrant marketplace where platforms innovate and compete on price, features and customer service. Electronic conveyancing is still very new and as an industry we haven’t yet determined the most effective way to encourage genuine competition—interoperability is so far the only concept that’s been put forward. We are advocating for a robust review of all potential models of competition to foster contestability and deliver genuine choice.
When do you believe we'll see interoperability commencing?
No timeframe has been set. The first step should be the engagement of stakeholders nationally to assess competitive marketplace needs and determine whether an interoperability model exists that fits the criteria we outlined earlier. That is, interoperability should not:
impose additional cost (which is likely to be passed on to consumers);
increase risk to titles registers or in financial settlement;
create additional liability for network participants; or
make it difficult to assign accountability if something goes wrong.
if the other party is using the Sympli platform would I be able to settle through PEXA?
Depending on the model of interoperability that is chosen, you may not be able to choose your settlement provider. This would be determined by yet to be defined business rules rather than the platform you chose for your data entry. If something went wrong in the transaction, it is unclear how liability would be determined.
If a problem occurs with the transaction, who would I call?
If all parties used PEXA, we would, as we are today, be accountable for transaction success, with your transaction also covered by our Residential Sellers Guarantee and Lodgement Gap Cover. In an interoperable transaction, PEXA’s liability and guarantees might not apply. In the case of a participant rather than platform error in an interoperable model, you would call the ELNO you used for data input, and it would then work with the other provider and the participants to surface the problem. A comprehensive process would need to be determined regarding how this would work, depending on the type of support that is required to cover all of the scenarios that arise.
I see insurance as A BIG ISSUE with multiple ELNOS. WILL THE COST INCREASE?
Independent risk management advisory firm Willis Towers Watson has provided preliminary advice that interoperability may not be insurable. You can find a copy of that report here (page 63 onwards).
If interoperability does prove to be insurable, insurance costs will rise along with any increase in risk and complexity, though it is too early to say how big the effect might be, particularly if errors lead to an uptick in claims.
Do you see privacy breach issues with interoperability?
Protecting individuals’ privacy must be an essential feature of any future interoperable model and in our future discussions with regulators we will be focused on ensuring that the high level of protection afforded by the PEXA System is not compromised in this process. This would likely need to include both regulatory and contractual changes. We know that PEXA’s contractual suite would need to be renegotiated and rewritten for interoperability and that, without choice on which ELNO completes lodgement and settlement, your client’s home could be settled on a platform with which you have no contractual relationship. Also, in a simultaneous settlement, entire lodgements could be conducted by an ELNO that had no contractual relationship with any participating subscriber.
Will PEXA still guarantee any trust funds released into PEXA under interoperability?
As noted, liability arrangements in PEXA’s Participation Agreement will need to be revisited for interoperability. PEXA cannot accept responsibility for third party systems, including other ELNO platforms. For subscribers using their own trust accounts, instructions captured in one platform would be executed in another. PEXA’s area of responsibility would be narrow in this instance. Further, PEXA’s current Source Account supports PEXA settlements and would not support an interoperable model, and PEXA’s Residential Seller Guarantee might not apply with interoperability. PEXA can only be responsible for its own platform – changes to the regulatory, legal and contractual frameworks in the event of an interoperable model will require all of these issues to be revisited. It is also important to note that trust funds are not ‘released’ into PEXA – rather, PEXA sends payment instructions to financial institutions (as relevant) to initiate the movement of funds, but does not receive or access funds withdrawn from a practitioner’s trust account.
How would the lodging ELNO be determined?
Nationally agreed business rules will need to be set. The lodging ELN must be able to support all the necessary instruments and be connected to the right banks. If this is the case for both ELNs, the ‘responsible subscriber’ (in many cases that is the incoming mortgagee) could potentially determine the lodging ELN (this is supported by NSW but not yet agreed nationally).
Does interoperability increase risk to the industry? How?
The risks include data mismatch, multiple sources of truth, ambiguity around accountability, heightened risks around cyber security and a solution that may not be insurable, to name a few.
Does interoperability increase system resilience?
Unfortunately, no, unless all practitioners and financial institutions subscribe to all ELNOs and begin each transaction from scratch on the same platform (making competition effectively moot). If anything, interoperability reduces resilience as it introduces an additional point of potential failure. Importantly, the majority of unplanned outages so far have resulted from a third-party issue, such as the unavailability of a Land Registry, which would affect all econveyancing platforms with or without interoperability.
What do I do if my client’s funds are not received as part of an interoperable transaction?
You would need to find out which platform executed the settlement and which banks were involved.
Does the industry support interoperability?
Broadly speaking, the industry supports competition and, in theory, interoperability—as long as the model chosen does not require transaction participants to subscribe to every platform in the market. The Australian Banking Association and the Australian Institute of Conveyancers say they will only support an interoperability model that does not introduce new costs, risk or complexity in property transactions. As yet, no proposed model of interoperability meets these criteria.
Will the Secure Interoperability API be a government body?
Different governments are exploring different technologies for interoperability, including API (application programming interface) and DLT (distributed ledger) technologies. Some think ELNs should directly connect (bilateral or ‘separate synchronised workspaces’) and some think they should connect through an information exchange hub. We don’t yet know what features the connections will have or what the ownership structure will be. Different state-by-state approaches to interoperability would be unworkable, introducing significant new costs, eliminating economies of scale and creating inconsistencies and complexities for financial institutions and practitioners working across jurisdictions.
Could you please provide the link to the IGA report?
The Dench McClean Carlson draft final report in its review of the InterGovernmental Agreement for an Electronic Conveyancing National Law can be found at www.dmcca.com.au/iga-review.
How do I learn more about interoperability?
Talk to your peak body, or contact us at industry@pexa.com.au.
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