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Treasury minister slams delays to interoperability

By Annie Kane
02 July 2024 | 15 minute read
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Dr Andrew Leigh MP has hit back at the “pause” on interoperability, stating the failure to bring about competition in e-conveyancing is “a problem caused by the mistakes of states and territories”.

In an exclusive article by Annie Kane, the managing editor of REB’s sister brand The Adviser, she wrote delays in bringing about choice in the e-conveyancing space had been criticised by the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh MP, who highlighted that “competition is really important for home buyers“, particularly as it could bring about cheaper conveyancing costs.

Around 3.7 million e-conveyancing transactions were processed nationally in the financial year ending June 2023. The costs of e-conveyancing are borne by buyers and sellers of property, including first home buyers.

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PEXA currently holds over 88 per cent of the e-conveyancing market share. The interoperability regime aims to facilitate competition by allowing each party in the settlement process (for example, lawyers, conveyancers, and brokers/financial institutions) to transact efficiently with all other parties while subscribing only to the operators they choose (for example, Sympli or LEXTECH).

It aims to help provide more competition in the e-conveyancing market, thereby reducing conveyancing costs.

Full interoperability for key documents had been expected to be in effect by 31 December 2025, but the whole program has been paused due to ongoing challenges.

Last month, the body responsible for facilitating the implementation and ongoing management of the regulatory framework for electronic conveyancing the Australian Registrars’ National Electronic Conveyancing Council (ARNECC) held a meeting with state and territory ministers, federal ministers, e-conveyancing companies and the banking industry to review the progress of e-conveyancing reforms, where several issues were raised.

In a statement issued last week, ARNECC said “recent issues raised by the banking industry” (not disclosed) were reportedly “beyond the remit of states and territories to address effectively”.

State and territory ministers said the progress of the interoperability program “faces significant challenges without these issues being resolved by the relevant parties”.

Indeed, following the meeting, relevant players were reportedly told by ARNECC that the whole interoperability scheme had been paused.

In a statement, PEXA said it was advised by ARNECC “that the interoperability program has been paused, and they are in the process of standing down their project team”. (While ARNECC has not confirmed this, several members on the call have confirmed this to The Adviser.)

‘Competition is really important for home buyers’

Speaking with The Adviser about the pause, Minister Leigh criticised the ongoing delays.

“I was on the call with states and territories,” the minister said, lamenting the pause in the program and flagging that ARNECC’s statement “did not call for a pause” explicitly.

Minister Leigh said he was keen to see interoperability progress on schedule to bring about better competition in conveyancing and reduce costs for home buyers.

“Competition is really important for home buyers. Home buyers are feeling the squeeze of rising home prices, so the least we can do is to provide cheaper conveyancers for every home buyer in Australia, but particular for first home buyers,” he told The Adviser.

Minister Leigh noted that delays in the interoperability program would likely only benefit the incumbent monopoly player, highlighting how PEXA’s “slow progress on interoperability in Australia, contrasts with the lightning-fast speed with which it was able to advance into market”.

However, he argued that “this is ultimately a problem that was caused by mistakes of states and territories”.

The federal minister explained: “This is a state matter, caused by states and territories, and there are other levers that are available to the states and territories, such as legislation for interoperability, which would be useful for them to pursue.

“Needless to say, anyone can make a complaint about misuse of market power to the ACCC process, but ultimately, this is a problem caused by states and territories, and where the responsibility lies is with the states and territories.”

The Treasury minister said the Commonwealth government “stands ready to help with any issue within Commonwealth jurisdiction”, adding “if we can make the process happen, we’re keen to do that”.

“I’m confident that we’re going to be able to find a way through on this, but I think it’s really important for states and territories to step up, to recognise the value for home buyers in getting cheaper conveyancers.”

The Assistant Minister for Competition, Charities and Treasury concluded: “This government has a huge competition reform agenda, from mergers to national competition policy, so we’re excited about the prospect of getting more competition or should I say, any competition in e-conveyancing.”

Is ARNECC fit for purpose?

The ‘pause’ in interoperability comes as a major new report slammed the capabilities of ARNECC to manage the e-conveyancing moving forward.

Yesterday (1 July), the NSW Productivity and Equality Commission released its E-Conveyancing Market Study, which found that there were several challenges facing interoperability, including “material barriers to entry” for new players in e-conveyancing. These barriers include:

• network effects;
• policy framework; and
• the costs of challenging the incumbent player (who has benefitted from “first mover” advantage due to its technological leadership, e-conveyancing mandates, and the existence of switching costs).

The report also highlighted that the e-conveyancing market “needs a fit-for-purpose policy and regulatory framework that differs from the current framework for the benefits of competition to be realised”.

The NSW Productivity and Equality Commission argued that ARNECC “faces challenges with its structure and resourcing that constrain its ability to deal with issues both today and in the future”.

“Further, it lacks the necessary financial settlement and competition expertise to oversee the market as a whole.”

Instead, the commission stated that the Australian Competition and Consumer Commission (ACCC), would be best placed to lead the ongoing market oversight and monitoring of the e-conveyancing market in Australia.

Overall, the report put forward 18 recommendations to deliver competition to the e-conveyancing market for the benefit of consumers, including:

• ARNECC should develop and publish a detailed industry roadmap for launch of interoperability by December 2025;
• ARNECC/Registrars should impose regulatory requirements on Electronic Lodgment Network Operators to meet specific key milestones, including pursuing financial penalties.

The CEO of e-conveyancing provider Sympli (a company backed by InfoTrack and the ASX), Philip Joyce, welcomed the report, stating: “We call on government to urgently find a clear path forward to bring competition to this critical market – that starts with supporting the recommendations from this report, especially enforcement actions against the entrenched monopoly.”

Reflecting on the ‘pausing’ of the interoperability program, Joyce added: “Given the issues raised we call on the Commonwealth government, including the ACCC, to work collaboratively with the states to ensure that ARNECC receive the support they need to resolve issues plaguing this program and deliver this critical reform.”

“In a cost of living crisis, I would encourage governments at all levels to do what is needed to provide the right settings for competition and this should include enforcement action to ensure interoperability can be delivered.”

Last year, the first pilot transactions utilising interoperability were completed in Queensland.

The refinance transactions involved two electronic lodgment network operators Sympli and PEXA with the two lenders involved being the Commonwealth Bank of Australia and National Australia Bank.

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