CMP Blog

CM Protect and Client Money Protection

Client Money Protection: blog by Ian Langley

CM Protect is the first commercially available Client Money Protection (CMP) scheme intended for letting agents outside of normal trade organisation member benefits. 

Understandably, there will be concern by some as to whether the protection provided by CM Protect is robust when compared to the schemes offered by more established letting agent representative bodies. 

As the director of operations of CM Protect, I am keen to explain our aims and provide comfort to those who opt to use our services for this important protection. 

CM Protect was envisaged as an alternative route to obtaining CMP for those letting agents who, for whatever reason, had decided not to join an organisation such as ARLA, NALS or UKALA.

We felt that this segment of the market needed access to CMP because they too should be able to obtain the cover just like any other agent wishing to give their landlords and tenants full protection and to distinguish themselves from any rogue operators in the industry.

CM Protect is an insurance protection scheme. It was never created to provide a set of standards that an agent should follow for all its letting processes and procedures. 

CMP relies on the safe holding and handling of client money, and our terms and conditions relate purely to this area of the agent’s business. 

For other best practice standards we feel that these are better set and monitored by others, which is why we insist that agents using our services also join a recognised external redress scheme such as The Property Ombudsman. We involve ourselves purely in situations where monies are misappropriated and which cannot be dealt with by these schemes. 

Misappropriation is not always as a result of malicious intent. There are countless examples of well-intended agents that fail to operate their financial affairs in the correct way, either out of ignorance or if their business falls on unexpected hard times. In all other areas of their business they offer a high level of personal service and follow the expected standards. 

It is in these circumstances that CMP is a valuable protection for their client money. CM Protect aims to help educate agents on best practices when holding client money, but also provide protection for the consumer when the unthinkable happens. This is not opportunism by CM Protect nor is it diluting the value of CMP because it is not connected to other industry practices. 

Our credentials in operating such a scheme are off the back of our insurance and risk knowledge and from dealing with the Financial Conduct Authority and its predecessor, and our experience in administering a successful tenancy deposit protection scheme, my|deposits, which is another form of client money protection.

To provide substance to the above claims, it is important for interested agents to understand that joining CM Protect is not ‘the easy option’ when weighing up whether to join a trade body or join CM Protect. 

Let me expand.

Firstly, CM Protect uses highly qualified and well respected third parties to provide our credit referencing and client money account audits. 

We do not rely on a pure accountant’s declaration that can only provide a snapshot of the accounts on any given day and that provides no evidence of correct usage of the accounts. We analyse the agent’s trading patterns and calculate the expected client money balances that the agent should be holding. 

We then check the actual client money balances over a period of previous monthly statements to see whether enough money is held in the account and that it is being operated correctly, e.g. the number of paying in and withdrawal transactions and values of deposits held. 

If the surplus in the account does not tally with our expected results, the agent cannot join the scheme. We offer guidance and support to help agents to operate their accounts correctly. Financial robustness of the firm is monitored regularly using our credit agency partners and we have the option of ad-hoc audits if we feel this is necessary.

We also require every member of CM Protect to hold adequate and robust Professional Indemnity insurance that covers, amongst other risks, theft of client money by employees. 

We do not insist that the agent purchase our Professional Indemnity insurance, but we will require evidence that it meets our standards. Both the provision of CMP and professional indemnity together provides full protection of client money under most circumstances. 

Our membership fee is based on contributions to the insurance policy held by CM Protect and the cost of financial auditing. We do not have to charge members for other non-financial services such as advice lines, lobbying and professional development, but the member still has to join a redress scheme and understand the lettings industry. 

We cap our acceptance criteria at agents with a turnover of less than £1m and less than six individual branches. We consider that larger agents should always be a member of trade organisations.

We take our responsibility as a supplier of CMP seriously. CM Protect is a membership body that consumers can contact if they experience client money issues with their agent.  It is independent from the letting agent in so much as the insurance is in place for the benefit of the landlord and tenant. 

It is designed to be a true protection organisation with full transparency of our levels of insurance and details on how to make a claim published on our website. Members are required to display our logo and provide their clients with details of the protection and how to contact us. 

In summary, we believe that only the right agent will become a member of CM Protect, and rather than be seen as diluting the value of CMP and undermining future regulation, we consider our offering to be complementary to other consumer protection schemes in the market and helping to raise confidence and standards in the private rented sector. 

* Ian Langley is director of operations at CM Protect