|Industry Focus:||Financial Services|
What you need to know
- For mortgage purposes, the verification of identity (VOI) requirements in Queensland will be updated from 1 March 2016 to align with what is essentially a unified model applied across Australia.
- The VOI standard requires a financier or its agent to conduct a "face-to-face" in-person interview with the person being identified, who must produce the original documentation outlined in the VOI Standard to establish his or her identity.
- Financiers must ensure they comply with the new VOI Standard in respect of identifying mortgagors if the financier wants to obtain the protection afforded by a presumption of compliance.
For mortgage purposes, the verification of identity (VOI) requirements in Queensland will be updated from 1 March 2016 to align with what is essentially a unified model applied across Australia.
As set out in our previous article, 1 the purpose of VOI is to ensure that the person executing the mortgage is the same as the person who is, or who will become, the registered proprietor of the land that is security for payment of a debt or obligation owed to a financier.
Position in Queensland
Currently in Queensland, financiers are presumed to have taken "reasonable steps" to identify mortgagors under the Land Title Act and the Land Act 2 if they comply with the identification requirements set out in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). Essentially, those practices reflect the '100 points of identification' provisions under Commonwealth legislation governing certain financial transactions.
The recent update to Queensland's Land Title Practice Manual (LTPM) means that the current VOI requirements for paper lodgements will be replaced with the national VOI standard (VOI Standard) set out in the Model Participation Rules determined pursuant to s23 of the Electronic Conveyancing National Law (Queensland) (Participation Rules). These practices align with those obligations for financial institutions and other subscribers who undertake land titling transactions electronically under the Queensland Participation Rules.
From 1 March 2016, the VOI Standard will replace the current requirements (i.e. compliance with the AML/CTF Act) so that a financier will be deemed to have taken "reasonable steps" if it follows the VOI Standard. Financiers can apply existing procedures in respect of VOI until 1 March 2016. This is the case whether the related mortgage is proposed to be lodged before or after 1 March 2016.
The VOI Standard is set out in Schedule 8 of the Participation Rules (and will be set out in Part 60-2000 of the LTPM). It requires a financier or its agent to conduct a "face-to-face" in-person interview with the person being identified, who must produce the original documentation outlined in the VOI Standard to establish his or her identity. The new "category" system is a cascading arrangement: the individual being identified must produce original documents in one of the categories in order to establish their identity. They are required to start with Category 1, before moving to the next category if documents in that category cannot be produced. The financier must be reasonably satisfied that a prior category cannot be met before moving to the next category.
Financiers must also identify individuals signing on behalf of corporate mortgagors or attorneys in accordance with the VOI Standard in a manner much like that for the VOI requirements in New South Wales, Victoria, South Australia and Western Australia. In short, that requires the financier or its agent to verify the identity of the directors or attorneys in accordance with the new "category" system referred to above.
The VOI Standard also requires that financiers take further steps to verify the identity of the individual being identified where the financier ought reasonably know that the identification documentation is not genuine or any photo identification is not a reasonable likeness to the individual.
Differences between the VOI Standard and the WA and SA requirements
The VOI Standard to be adopted in Queensland aligns closely with that in New South Wales and Victoria. However, whilst the VOI Standard is much like the VOI requirements already adopted in South Australia and Western Australia, there are two minor differences:
- the VOI Standard does not require lodgement of a separate letter with the relevant Land Titles Office or to make a notation certifying compliance with the VOI requirements on the mortgage, and
- the VOI Standard does not require the mortgagor to execute the mortgage in front of the verifier.
Whilst the requirement remains for financiers to take "reasonable steps" to confirm the identity of a mortgagor, if a financier wants to obtain the protection afforded by a presumption of compliance, it should adhere to the VOI Standard.
If a financier chooses to use other methods to identify a mortgagor and an instance of fraud arises, the financier must prove that the identification method used was reasonable in the circumstances. If it cannot prove that reasonable steps were taken to verify the identity of the mortgagor, the financier will generally lose the benefit of indefeasibility of title (which follows from registration) and the mortgage will be void.
That said, fraudulent mortgages may remain enforceable in certain circumstances should the individual perpetrating the fraud be found to have used high quality forged identity documents.
Financiers will need to ensure that they have procedures and policies in place (particularly in regard to record-keeping – which now requires a written record of the steps taken in accordance with the VOI Standard) to:
- demonstrate that they have taken proactive steps to comply with the VOI Standard, and
- defend any claim to the contrary.
Whether or how a financier chooses to do so will involve balancing the costs of modifying its processes with the risks of noncompliance.
For the time being, Queensland will only require mortgagors to be verified under the VOI Standard. This will not extend to other parties signing dealings (such as transfers).
Financiers must ensure they comply with the new VOI Standard in respect of identifying mortgagors if the financier wants to obtain the protection afforded by a presumption of compliance.
Table 1 provides an updated comparison of the key differences in the jurisdictions.
1 Kirkup, Andreou & Luke, "An update
to verification of identity requirements for mortgages in
Australian jurisdictions" (2014) 30(1) Australian Banking
and Finance Law Bulletin 277.
2 s11A of the Land Title Act 1994 and s288A(3) of the Land Act 1994
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.