The government will launch a consultation into anti-money laundering laws and banks’ treatment of undesignated client accounts, following sustained pressure from the lettings industry.
For several years, banks have been closing letting agencies’ undesignated client accounts – often with little warning – and telling them to open designated accounts for each client or find another bank to work with. Some banks reportedly see undesignated client accounts as a risk under anti-money laundering (AML) legislation, which property industry groups say is leading them to apply an overly strict interpretation of the rules.
Losing access to a pooled client account isn’t just an administrative nightmare, it also breaches the terms of the agency’s Client Money Protection scheme membership, which requires agencies to hold all client money with a bank or building society registered with the Financial Conduct Authority (FCA).
Many agencies use undesignated client accounts which allows agents to use one account to hold all client money. The alternative is to open a designated client account for every landlord, which increases an agency’s costs and admin time. .
Could AML rule changes solve agencies’ client account headache?
According to industry bodies like Propertymark, the reason undesignated client accounts are being closed is that banks are taking an overzealous approach to AML rules.
By law, letting agencies only have to register for AML supervision by His Majesty’s Revenue and Customs (HMRC) if they rent any property for €10,000 or more. In a recent letter to the Chancellor, Propertymark argued that letting agencies that don’t meet this threshold aren’t required to carry out customer due diligence checks as set out in AML rules.
The government is now reminding banks that they can apply simplified due diligence (SDD) to letting agencies when they judge that the risk of money laundering and terrorist financing is low. Under SDD, they don’t need to check the identity of each person whose money is held in an undesignated account – which can be a big ask for a letting agency with a large portfolio.
But the risk of money laundering in the property industry isn’t necessarily low. The government’s most recent national risk assessment of money laundering and terrorist financing, conducted in 2020, found that letting agencies presented a medium risk of money laundering due to the regular flow of funds and the possibility of concealing the beneficial owners of properties.
The consultation is scheduled to begin later this year, and in her response to Propertymark, Treasury Lords Minister Baroness Penn said one option could be to “widen the range of low-risk circumstances in which pooled client accounts may be provided while applying SDD”.
But any change to the law would have to be made before the next election, and this may not be a priority for the government.
In the meantime, the safest options for agencies are to open designated client accounts for each landlord, or work with a third-party payment provider that enables letting agencies to hold client funds within an undesignated client account with an FCA-registered bank or building society.
PayProp holds all client money in compliant client money accounts with NatWest, which is registered with the FCA. Because incoming and outgoing payments are automated, agents can cut their administrative overhead while enjoying the peace of mind of knowing that their accounts are compliant.
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