It is written in the Rambam (Laws of Forbidden Relations chap. 14, 2) that when the potential convert comes to convert "we notify him regarding a small number of weighty mitzvot and a small number of light mitzvot and we may not prolong this matter". So we see that we should merely notify them regarding a small number of mitzvot and not to teach them the intricacies and finite details. And this is partly because we find written in the talmud (Sanhedrin 59) and codified in the Rambam (Laws of Kings 10, 9) that a non-Jew is forbidden to learn Torah and if he does so he is liable to death. This is also borne out from the gemara (Shabbat 31a) that we find that the great sage Hillel the elder taught the converts Torah only after he converted them and not before. Thus it is forbidden to teach them the intricacies of Jewish law until they have converted since prior to conversion they are considered completely as non-Jews. Thus, one who teaches them in such a manner is certainly causing them to sin. Also we find that it is forbidden to prolong this process since we do not wish to overly discourage and frighten them.
Moreover, teaches the Rambam there (ibid. 5) that if he accepts this we must convert him immediately and it is forbidden to delay this. Explains the Bet Yosef (268, 2) the reason for this that we are forbidden to delay a mitzva and must do it promptly. And writes the Rambam there that we should not be exacting on the convert and this clearly signifies that we should not give him a test to see how much he has memorized about Jewish law etc. And off course all the above mentioned is learned from the words of the Talmud (Yevamot 47a) and is brought in the Tur and the Jewish code of law the Shulchan Aruch (268, 2) as the undisputed halacha.
Additionally, we do not find anywhere in the Torah or talmud or the Rambam or the Shulchan Aruch that a convert must move to a Jewish community prior to conversion and on the contrary the Rambam himself writes (Laws of Kings 5, 7) that a Jew is allowed to live anywhere in the world that he wishes except for Egypt and off course this includes the converts as well since we must treat them as full fledged Jews in every way like it is written many times in the Torah (Lev. 16, 29, ibid. 18, 26, Numbers 15, 14, ibid, 15, 29). It follows that if one rejects a potential convert due to this he is acting contrary to halacha since we may not be overly exacting on them and overly discourage them or delay them as mentioned above since we are thereby delaying a mitzva without any halachic justification. Also we are thereby preventing the potential convert from studying Torah and doing mitzvot and thereby robbing from him his portion in the world to come.
Thus, in conclusion we find that according to Jewish law it is forbidden to teach potential converts the intricacies of Jewish law and likewise it is forbidden to draw out their conversion process for years. Also, one may not require them to be tested regarding this. And one may not obligate them to move to a Jewish community prior to conversion as a prerequisite. And all this stands in stark contrast to the tradition passed down to us from Mount Sinai as taught in the Talmud and the Rambam and the Shulchan Aruch.
I could think of few things as to why, but I was wondering, is there any Halachic mention of this practice?