We last wrote to the Chancellor in August 2023 with a detailed briefing on the problem of overly risk-averse banks preventing agents from opening accounts to process funds belonging to their landlords. Since then, we have continued to engage with HM Treasury, meeting with officials and providing evidence from the experiences of our membership.
Proposals overlook letting agents
Propertymark is concerned that the consultation on improving the Money Laundering Regulations due to close on 9 June 2024 does not consider bringing all letting agents into supervision. Currently, whilst all estate agents are supervised, this only applies to letting agents if an individual property they let has a monthly rent of 10,000 euros or more.
The existing system creates an unnecessary two-tier approach and results in agents being unsure if they must carry out due diligence. This particularly affects estate agents who also rent out properties because it’s not clear if all their activities are subject to AML supervision or only estate agency work.
Agents hindered in fulfilling client duties
Letting agents in England, Wales and Scotland must adhere to mandatory Client Money Protection (CMP) rules that require letting agents hold their clients’ money in an account with a bank or building society authorised by the Financial Conduct Authority.
CMP scheme providers require agents to have pooled client accounts so that if the agent goes into administration, it is clear which funds belong to the business and which to clients. This is a vital protection to ensure client money is safeguarded and can be returned, even if the business fails.
For several years banks have been withdrawing access to pooled client accounts, sometimes called undesignated client accounts, because they perceive them as a risk to their compliance with Anti-Money Laundering Regulations. However, this is based on a lack of understanding about how the current regulations for CMP and AML apply to letting agents.
Multiple benefits of extending supervision
Removing the threshold for supervision would remove uncertainty for agents and create consistency across all housing tenures, further reducing the risk of money laundering through UK property. Allowing all agencies to become supervised firms would also provide reassurance to banks that the sector does not present an inherent risk.
Additionally, the Office of Financial Sanctions Implementation is considering requiring all letting agents, regardless of whether they meet the current threshold or not, to report if they have encountered suspected Designated Persons on the sanctions list during their business.
This would oblige agents to carry out customer due diligence on the landlords and tenants that they enter business with, in addition to their checks on tenants to ensure they can verify their identity and have the financial means to afford their rent.
To ensure enforcement by the sector and avoid more confusion around AML requirements, we recommend that the UK Government makes this a legal requirement and extends supervision to all letting agents.
