Innovation Blueprint for HM Land Registry: Borrowing from the Bank of England and the Payments Industry

Introduction:

Have you ever wondered why money transfers can happen almost instantly, while that isn’t possible for the transfer of property titles? In this article, we will delve into the difference in approach to land registry services and payments, and what would happen if HM Land Registry worked like a Central Bank.

The?HM Land Registry (HMLR) strategy, states that a?‘functioning property market underpins a successful and sustainable economy’?which is of course true, the question is as digital innovation accelerates exponentially, what is needed for the public sector to keep pace with the needs of the digital economy? What can the land registration system learn from Central Banks? Can the payments industry provide a blueprint for improvement?

The Role of HM Land Registry and the Bank of England:

HM Land Registry's important purpose, as described in their strategy, is to?"protect your land ownership and provide services and data that underpin an efficient and informed property market."?They fulfil this objective through three key services:

1. Issuing Titles

2. Acting as a custodian of Titles

3. Providing services that enable the transfer of Titles

The Bank of England's equally important purpose is to?"promote the good of the people of the United Kingdom by maintaining monetary and financial stability."?In addition to monetary policy and regulation, the Bank of England provides three key services:

1. Issuing banknotes

2. Acting as a custodian of commercial bank money

3. Providing services that enable the transfer of Money

At a basic level, you could argue that the core functions of?HM Land Registry?and the?Bank of England?are rather similar: the issuing, custodianship, and transfer of assets.

Differences between HMLR and BOE and the Payments Industry:

When we compare how HM Land Registry works with that of the Bank of England and the wider payments industry, they take quite a different approach. In housing transactions, deposits and principal amounts can be processed instantly through faster payments. For larger amounts, the CHAPS system ensures same-day payments in most cases. ?However, when it comes to title transfers, there is quite a different approach, which takes between 3 weeks to 3 months, and sometimes even up to 6 months (see processing times)

The reason for this disparity does not lie in the volume or value of housing transactions. The total value of all housing stock in the UK exceeds ￡8 trillion, whereas the value of money in circulation amounts to ￡3 trillion. Meanwhile, the value of transactions processed, HM Land Registry handles transactions worth ￡260 billion per year, while the Bank of England, through CHAPS, processes over ￡300 billion per day. So actually the BoE transacts more value in a day than HMLR transacts in a year.

So it's not about the value of the transaction, or that you need to be more careful with a title transfer than a money, transfer. ?It must be a difference of approach.?Let's look at the capabilities or components of a money transfer.

How Money is Transferred:

The transfer of money (digital, not cash) involves several key components:

1. Sales, Marketing, Innovation, and Competition

2. Identity and KYC Services

3. Bank Accounts

4. BOE Settlement Services

5. BOE Reserve Accounts

While there are various payment schemes and methods, these five elements are typically present. Let's explore each component:

Sales, Marketing, Innovation, and Competition:

Commercial banks drive innovation and compete for customers who open accounts, deposit funds, and take out loans. Providing excellent online services that facilitate the transfer of money in exchange for goods and services is crucial for their success. Recent years have seen significant competition and corresponding innovation in user experience and transaction services.

Identity Services:

Banks know their customers' identities. When opening an account, customers go through a Know Your Customer (KYC) process to verify their identity.

Bank Accounts:

Once a customer's identity is established, the bank provides them with a unique bank account. Within this account, the bank displays the customer's balances, which are created through bank loans or transfers from other sources.

BOE Reserve Account:

Commercial banks have accounts at the Bank of England where they store funds. These funds are used for settling transactions, as we will explore in the next point.

BOE Settlement Service:

When banks need to move money between them, they request the Bank of England to transfer the funds between their accounts. In a housing transaction, for example, the buyer's bank would send a SWIFT message to the Bank of England, requesting to debit their account and credit the recipient's account. The Bank of England then exchanges the funds and notifies the recipient's bank, which credits their customer's account.

In the transfer of money, we see:

• Bank of England provides wholesale services
• Partnering with Commercial Banks that provide retail services
• A competitive retail market driving innovation and continuous improvement
• An outcome of a highly innovative payments landscape with real-time instant transfer of money that supports the digital economy

How Titles are Transferred:

When comparing payments to title transfers, these are quite different.?There is no public sector competition in Land Registry, customers don’t have digital IDs, or accounts. Land Registry doesn’t look much like a Bank at all!

Let's compare each component further:

Sales, Marketing, Innovation, and Competition:

To transfer a title, you have to use the HM Land Registry service. While HM Land Registry acknowledges the need to improve processing times, there is no competition of multiple organisations innovating to come up with a faster way to do it.?The burden of innovation sits solely and squarely on HMLR, to achieve with their understandably limited resources.

“We recognise that some of our processing times are not what we want them to be and improving the speed of our services is our top priority”?HM Land Registry

Identity and KYC Services:

Unlike a Bank, HMLR doesn't know who you are.

Picture this scenario: there could be a hundred, maybe even a thousand John Reynolds in the UK. HMLR might know that there are, let's say, a hundred properties owned by individuals named John Reynolds. But here's the catch—they cannot know which John Reynolds is associated with each property.

So, what does this mean? Well, every time you want to transfer the title of your house to someone else, you not only have to prove that you are John Reynolds, but you also have to demonstrate that you are the "real" John Reynolds. It's like going through a continuous Know Your Customer (KYC) process.

Now imagine if you had to go through a full KYC process involving a solicitor whenever you wanted to make an online payment ??

Bank Accounts:

HM Land Registry does not provide user accounts. There is no concept of having an account with your specific title that you can log into and interact with the title. It is difficult for a custody service provider can operate without customer accounts or identity services.

BOE Settlement Services:

While HM Land Registry does provide the "settlement service" for title transfers, it is the lack of digital identification and customer accounts that makes it necessary to have a manual transfer process.

Act Like a Bank:?a novel way to speed up Title Transfer

I personally know many dedicated and passionate individuals working at HM Land Registry, and the answer does not lie in simply hiring more people or providing additional training. The staff at HMLR are already highly capable, dedicated and well-trained individuals.

To bring more outside innovation HM Land Registry could consider introducing competition in retail title transfer services. Competition has always been a great driver of innovation, and it's well-known that competitive marketplaces always outperform individual entities in terms of innovation.

One potential solution is for HM Land Registry to follow a similar approach to the Bank of England in the market. This would mean shifting their focus away from having to keep up with the rapidly accelerating pace of the digital economy's innovation. Instead, HMLR could concentrate on their core strengths, such as title custody, and provide wholesale services exclusively to accredited commercial banks.

Commercial banks, as they currently do, could take on the responsibility of providing retail services such as handling customer identity verification (KYC) processes, providing them with accounts and the ability to request digital title transfer. Through collaboration with HM Land Registry, these banks could validate the customers' title ownership balances held at HM Land Registry, which could be conveniently displayed in their accounts. When a title transfer is completed, it would seamlessly move from one account to another, with settlement taking place in the background on the Land Register.

By allowing commercial banks to handle the front-end/retail title transfer process, HM Land Registry could devote its entire focus (and inevitably limited budget) to its core mission of safeguarding property ownership. At the same time, the private sector and regulated businesses, which have already proven their ability to deliver efficient KYC processes, accounts, and real-time value transfers, could take the lead in providing rapidly innovating services that support an efficient, face-moving digital property market.

Conclusion:

Of course, Land Registry is not Banking, but by comparing the two, a novel approach emerges that could just leverage the strengths of both sectors and encourages innovation in the property market.

It would allow HM Land Registry to keep pace with the demands of the digital economy while ensuring efficient and secure title transfers. By embracing competition, collaboration, and innovation, HM Land Registry could contribute to a thriving property market that underpins a successful and sustainable economy.?Best of all, it might take some of the pressure off the many dedicated and passionate individuals at HM Land Registry who are committed to providing quality services.

That's it for this week.

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Lastly, I just want to mention that all content and views expressed here are my personal opinions and do not reflect the views of any of my employers or employees.

Until next time, stay tuned, and stay curious! ???