Safe and effective competition should be established through ELNO interoperability
Sympli entered the e-settlement market in 2018 with a clear purpose of representing industry’s need for a secure, reliable and efficient e-settlements service. We’re proud to be a force of positive change in the industry during this critical period of transformation and we support the work also being undertaken by ARNECC, PEXA, and the industry to deliver the full benefits of digitisation to the Australian public.
Affording the right to choose between Electronic Lodgment Network Operators (ELNOs) is a cornerstone of a reliable and innovative e-settlement industry. Indeed, this has been recognised since the law establishing the industry, Electronic Conveyancing National Law (ECNL), was enacted in 2012/2013.
Interoperability between ELNOs offers the right for every user, whether lawyer, conveyancer or financial institution, to choose their ELNO irrespective of the ELNO used by another transacting party.
Key industry stakeholders have been coming together in various forums and workshops since late 2018 to consider how interoperability should work in our industry. What is clear to us is that interoperability enables safe and effective competition. While there are several models under consideration by the regulator and there is more detail to be agreed between industry stakeholders, Sympli believes that one such option, a bilateral ELN-to-ELN model, would best support safe and effective competition.
We have sought to separate the fact from the myth by responding to the most common questions from users about ELNO competition and interoperability.
Frequently Asked Questions
ELNO competition is a cornerstone of a reliable and vibrant e-settlement industry and is critical to the long-term sustainability of the market. Here are some of the benefits that flow from ELNO competition:
Freedom of choice: the right to choose the ELNO that best suits your business model and your clients’ needs (irrespective of the ELNO used by other transacting parties).
Focused service, enhanced security and competitive pricing: when ELNOs are competing for your business, you will experience a range of benefits including ELNOs:
- continuously improving service delivery and being responsive to your feedback
- investing in security improvements for ELNOs and their clients to support safe and reliable e-settlements
- delivering better value of money (e.g. Sympli’s pricing is 15-50% lower)
Innovation: ELNO services are technology-driven and therefore innovation will be a key driver of risk reduction and efficiency. Competition will spur ELNOs and related service providers to continue to invest in new technologies.
Market resilience: multiple ELNOs will remove the industry’s reliance on any single operator, thereby reducing risk and improving settlement certainty.
Elimination of monopolistic behaviours: commercial incentives that exist in a monopoly environment (e.g. a monopoly ELNO competing with conveyancing services) are removed. Competition also eliminates the costs and challenges that commonly arise from regulatory intervention of a monopoly market.
Interoperability can be designed in such a way that ensures users continue to interact with each other as though they are all using the same ELNO. Specifically:
- there is no need to change how information is input into the workspace
- there is no need to change the information that is currently shared in a workspace
- there is no need to change the way subscribers sign registry instruments and settlement instructions
- your ELNO will retain its obligations to you under its Subscriber Agreement and other regulatory obligations
Interoperability means that every user gains the right to choose their ELNO for every settlement.
As users enter information into their ELNOs workspace, relevant information is shared with other ELNOs whose subscriber/s are participating in the same settlement.
Information will be shared using an agreed standard and via a secure Application Programming Interface (API), in a similar way to how information is currently shared between ELNOs and land registries, revenue offices and financial institutions. The most cost-effective way to share information between two ELNOs is a bilateral ELN-to-ELN connection (although the regulator could establish an information hub in the future as more ELNOs join the industry).
Importantly, one ELNO will be responsible for final lodgment and settlement. This ELNO, known as the ‘Lodging ELNO’, would be determined for every settlement based on an industry-agreed rule. See “How is the Lodging ELNO determined?” below for more detail.
The Interoperability API will be designed in a way that makes the Lodging ELNO the authoritative database in any settlement. The Non-Lodging ELNO therefore acts as an instrument for remote data entry into the Lodging ELNO which avoids potential challenges around database synchronisation.
The diagram below is an illustration of how this model would work in practice:
The industry has determined that the Lodging ELNO should be the ELNO of the ‘Responsible Subscriber’ (which is the incoming mortgagee or cash purchaser if there is no incoming mortgagee).
In a linked settlement it’s the ELNO of the Responsible Subscriber in the last financial workspace in the chain.
Our current thinking is that Sympli would make you aware of the Lodging ELNO and ask you to expressly authorise the Lodging ELNO to complete the settlement. However, from a practical perspective it will make no difference to your experience or the outcome of the transaction.
Sympli and PEXA will have very similar processes to complete settlement due to the influence of the Reserve Bank of Australia, financial institutions and land registries.
One of the benefits of a ‘Lodging ELNO’ for every settlement is that the settlement process does not fundamentally change for an interoperable settlement versus standalone ELNO settlement.
Based on discussions with land registries, revenue offices and financial institutions, interoperability does not fundamentally change the existing connections or commercial arrangements.
Interoperability does not fundamentally require an ELNO to do anything it does not already do as a standalone ELNO, therefore the current risk profile of the electronic settlements industry does not increase.
ELNOs will maintain the same standards of security as they are held to by ARNECC under the Model Operating Requirements (MOR). You can read more about the MOR on the ARNECC website here.
The Reserve Bank of Australia will continue to play a role in regulating financial settlement activities of ELNOs.
The Interoperability API will at least meet the minimum security standards of the other APIs in the industry including Transport Layer Security (TLS) and strong authentication.
In fact, interoperability will improve the overall industry risk profile by eliminating the industry’s reliance on any single operator and incentivising ELNOs to invest in tools to support their subscribers’ cybersecurity.
If your client does not receive their settlement funds (e.g. settlement funds have gone to an incorrect or invalid account) the existing process and framework that has been adopted by the industry today remains the path to resolution. As a subscriber, you will direct your enquiry to your ELNO and your ELNO will investigate and undertake the actions that they do today to assist in facilitating a resolution.
Maintaining a high level of trust in the industry is critical so ELNOs and banks will continue to work together to establish processes that address potential risks as they arise.
Each subscriber’s ELNO will remain responsible for its performance and obligations. Any liability or dispute should be directed to your ELNO.
ELNOs will have agreed claims processes between them to promptly address and mitigate disputes or losses (including indemnity for fault).
The cost of implementing interoperability via an ELN-to-ELN API is relatively small and is outweighed by the significant savings for users and consumers.
APIs are commonly used communication protocols and represent business-as-usual activity for any ELNO. An ELN-to-ELN API would comfortably sit alongside the other API connections that ELNOs already have in place with land registries, revenue offices, banks and third-party software providers.
The Independent Pricing and Regulatory Tribunal of NSW (IPART) recently published a draft report which concluded that the capital cost of the Interoperability API should result in the Lodging ELNO charging the Non-Lodging ELNO $0.56 per transaction. The transfer price calculated by IPART is a cost sharing arrangement between ELNOs and is not an additional charge to subscribers in a transaction.
By comparison, interoperability offers each party to a transaction the right to use the ELNO that delivers best value for money. Sympli’s pricing schedule delivers a fee saving in the order of $76 per transfer transaction and $45 per refinance transaction.
Overall, the potential fee savings for the industry from Sympli’s pricing is around $65 million per year. To put that in context, those fee savings are more than the circa $50 million of fees ASX generates in Australian cash equity settlements each year.
IPART also investigated the cost savings from users avoiding the need to subscribe to all ELNOs. They estimated that the additional cost of onboarding, training, retention and the digital certificates with two ELNOs would be $1,100 per subscriber per year – which translates to $13 million per annum based on 12,000 subscribers.
However, it is our view that the circa $80 million of annual fee and subscriber cost savings from interoperability are dwarfed by the potential gains to consumers from reducing settlement risks and improving settlement efficiency through enhanced service and innovation.
Put simply, when you add up the benefits of interoperability against the insignificant cost to ELNOs of implementing interoperability, supporting this initiative is very easy.
Since Sympli first entered the market, we have heard from lawyers, conveyancers and financial institutions who want ELNO competition and the right to use an ELNO of their choice irrespective of the ELNO used by another transacting party. Interoperability is the only way to deliver this outcome which is why Sympli support it and has been actively working with ARNECC members and key stakeholders to develop a model for interoperability that is safe and effective.
There is widespread support for interoperability throughout key industry stakeholders and from the regulatory experts.
In its submission to the IGA Review dated 23 September 2019, the Law Council of Australia said:
“the Law Council wishes to emphasise its position that interoperability is a non-negotiable feature of the future of the eConveyancing market. In the Law Council’s view, competition in this market will drive innovation for improved products and services for users (particularly consumers) and maintain pressure on prices.”
Competition through interoperability has also been well supported by the Australian Competition and Consumer Commission and IPART (Independent Pricing and Regulatory Tribunal), the experts in regulated markets. You can read more from ACCC and IPART.
Implementing interoperability requires regulatory intervention and a national approach to interoperability can only be achieved by a decision of ARNECC.
Ultimately, ARNECC will need to require under its regulation that ELNOs share information via an API to enable interoperability.
As a first step, we encourage ARNECC to investigate interoperability through consultation with the industry to develop a model that is safe and effective.
We believe the following are useful resources:
- IPART Final Report – Review of The Pricing Framework For Electronic Conveyancing Services In NSW
- NSW Office of the Registrar General Submissions
- ACCC Report on e-Conveyancing Market Reform
Alternatively, please email your question to firstname.lastname@example.org. We look forward to hearing from you.