Guest Blog by The Letting Partnership
There is a lot of talk about banks closing the client accounts of existing letting agents, but what about those new entrants to the industry, who are struggling to find banks willing to even open client accounts for them in the first place? Here, The Letting Partnership provides some guidance
At The Letting Partnership, we see more and more start-up letting agents coming to us because they simply cannot gain access to a client account. Those who want us to take on their day-to-day client accounting can side-step the issue because we can set up a designated client account for them, but if an agent wants to go it alone then what is the problem? Let’s look briefly at the history…
In 2019 it became mandatory for all property agents in the private rented sector in England¹ handling clients’ money to join a government–approved Client Money Protection (CMP) scheme. Membership requirements of the schemes require the agent to hold a ring-fenced client account. By keeping money ring-fenced from other business activities, agents can use it for the sole purpose of handling and distributing deposits, rents, and fees. They come in a few guises – designated or pooled/undesignated.
It’s a chicken and egg problem!
In 2020, Anti-Money Laundering (AML) legislation was tightened, and regulatory scrutiny was increased to combat financial crimes like money laundering and terrorist financing. This has compelled banks to reassess their risk exposure. It’s worth noting that estate and letting agencies are not regulated by the Financial Conduct Authority (FCA), which makes our industry less appealing to banks that highly value the FCA’s regulations. As a result, banks have adopted a more cautious approach, closely scrutinising client accounts and terminating or refusing relationships that are deemed high risk.
We know of one major high street bank that would only open a client account once the agent had Propertymark membership – however, to join Propertymark the agent has to show they have a client account in place.
What can start-up agents do?
Applying for a client account is usually an automated process, so if an application is rejected it may be just a case of ‘computer says no’.
Check the latest government advice on money laundering supervision for letting agency businesses. Although most letting agents are not required to be registered with HMRC for supervision, this is a major factor that can lead banks to consider agents unsuitable for a client account. However, obtaining supervision may not be as straightforward as it seems, as HMRC often reject agents who try to register voluntarily. If you are registered then contact the bank’s regional Relationship Manager and ask for the reasons why. If you still have no luck then try contacting other high street banks in your area who could be more open to discussing individual circumstances.
Be aware that some banks will open a business account for a start-up letting agent but not a client account. Because the law and CMP scheme rules don’t always agree on what constitutes a client money account, it may be tempting to use a business account to manage your client money. However, trading without a clearly defined client money account risks your ability to obtain CMP insurance and you could end up with a fine of up to £30,000! Any business can open a bank account and name it a “client account” but this does not make it a client account as defined in legislation, CMP scheme rules or the banking industry.
For more detailed information about the different types of client accounts available, and more, download our free guide “Follow the Money”.
Government Consultation
Following months of lobbying by Propertymark and MPs, the UK Government finally took notice and HM Treasury published a consultation paper aimed at enhancing the effectiveness of the Money Laundering Regulations 2017, which impose obligations on businesses, including those in the property sector, to prevent money laundering and terrorist financing.
The consultation offers the potential for improved access to Pooled Client Accounts for letting agents who are not fully supervised by HMRC for anti-money laundering.
The Labour Government, which recently came into power, may have other ideas and could introduce different measures or modifications to the current proposals. The evolving political landscape suggests that ongoing developments in this area should be closely monitored.
As the industry grapples with this challenge, letting agents must explore alternative solutions.
Agents can opt to outsource the client accounting to a third party. These days there is plenty of competition for your business so take time to scan the options for the best solution for you.
Some companies offer stand-alone electronic money accounts and if you only want a banking solution then this could be for you. Before committing, however, you should check with your CMP provider that the company meets the scheme’s compliance criteria.
You could alternatively choose a banking platform provider who can offer a client account as an add-on to your existing software. Be aware though, that if your lettings software is already in place, this could involve duplication of work and/or unnecessary upheaval and you’re still the one pressing the buttons!
The Letting Partnership offer a simple hands-free solution by providing the client account as part of our outsourced client accounting package. A small, dedicated team, trained on your own chosen software, work on your existing software and provide support. For more information about how we can help you just call us on 01903 477903.
This article is intended as a guide only and does not constitute legal advice. If in doubt seek professional legal advice.
Originally published on The Letting Partnership’s news blog
The views expressed in this content are solely those of the author alone and do not necessarily represent the views of TDS, its officers, or employees.
Other news stories
