A leading industry figure is calling on agents to have a Plan B ready if their bank closes undesignated client accounts.
This warning comes after Lloyds Bank recently contacted numerous agents, asking them to open separate client accounts for all of their individual landlords - thought to be part of banks’ responses to existing anti-money laundering regulations which is set to tighten further next year.
Lloyds has been contacting various letting agencies, notifying them that undesignated client accounts will be closed with 60 days’ notice. The bank has offered its letting agency clients two options – to close undesignated client accounts and replace them with multiple designated client accounts, or to close their undesignated account and make 'alternative banking arrangements'.
The shift away from undesignated accounts also acts as an extension of the legal requirement for agents to operate separate client money and business accounts, which has been in force since April this year.
However, it causes much disruption to letting agents affected by the move, as Letting Agent Today reported earlier this month.
Now Neil Cobbold, chief operating officer of automated lettings payment service PayProp UK, says it’s time for agents to prepare for this to spread across other banks.
"All letting agencies need to be thinking about the way they will handle their client payments from now on. Those that bank with Lloyds must consider whether they want to open individual client accounts for each of their landlords or consider alternative options. Those who use other banks may have to prepare for similar action” he suggests.
Earlier this year, alongside the need for agents to operate separate client money and business accounts, it also became a requirement to join a Client Money Protection scheme.
The rules require agencies to hold money in a client money account with a bank or building society authorised by the Financial Conduct Authority, and to comply with written procedures for handling client money as well as keeping records and accounts that show all appropriate dealings.
"Agents may have thought that the introduction of mandatory CMP and the requirement for separate business and client bank accounts would be enough to ensure transparency and satisfy the banks" says Cobbold.
But he says that in light of Lloyds' actions, many agents will be wondering whether they should now consider opening client accounts for each of their landlords. They may also be worrying about the prospect of additional banking fees and administration work.
"If the thought of opening and managing hundreds of separate client bank accounts is concerning agents, there is a range of things they can do to put their mind at ease. They could switch banks or explore PropTech options which could help them to manage their payments using automation” explains Cobbold.
"The news from Lloyds should act as a warning for agencies, encouraging them to spring into action and get a plan in place, as this is an issue which is unlikely to go away and could escalate further in the coming months" he concludes.