The Chancellor, Jeremy Hunt, is being urged to act now to stop the problems banks are creating for letting agents.
Following a series of high-profile client account closures, Propertymark has written to Hunt highlighting the ongoing issues and pushing for action from the UK government to find solutions that reduce barriers for letting agents to operate.
For several years banks have been withdrawing access to pooled client accounts - sometimes called undesignated client accounts - because the authorities claim they are a risk to their compliance with Anti-Money Laundering Regulations.
But Propertymark says this is based on a lack of understanding about how the current regulations for client money protection and anti-money laundering apply to letting agents.
Here’s the letter it has sent to Hunt.
"Re: Banking firms closing letting agents’ undesignated client accounts
"Following high profile cases of banks closing bank accounts being reported in the news, I wanted to write to you to highlight ongoing issues relating to banks closing undesignated or pooled client accounts of letting agents.
"Propertymark is the UK leading professional body for property agents, with over 17,500 members representing 12,800 branches across the country and many of our members are being impacted by banks closing undesignated client accounts. Simply put, banks do not understand the legal requirements for letting agents to adhere to the Client Money Protection rules which require property agents to hold client’s money in an account with a bank or building society authorised by the Financial Conduct Authority and the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.
"The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 require letting agents who manage properties with monthly rental incomes of €10,000 or more (or equivalent amount in a Member State) to comply with anti-money laundering regulations and register with HMRC for anti- money laundering supervision.
"Despite how these regulations only affect a minority of letting agents, many agents continue to face challenges from banks with maintaining their undesignated client accounts because banks are asking letting agents to carry out Customer Due Diligence to the level as set out in the Money Laundering Regulations when all letting agents are not legally required to do so.
"This is against the guidance issued by the Joint Money Laundering Steering Group and does not allow letting agents to meet their legal obligations under the Client Money Protection rules. Furthermore, where letting agents hold a tenancy deposit and can’t put that money into an undesignated or pooled client account, they are in breach of Tenancy Deposit legislation.
"Consequently, what we are seeing is banks taking the stance to de-risk themselves to a point where they are refusing to open new client accounts or maintain existing accounts, some of which have been open for decades without issue. The decisions behind which agents have been allowed to keep their accounts has often been made at the local branch-level, with some banks being less willing to allow agents to keep their accounts than others.
This has made it difficult to establish a consistent approach across all bank branches. The removal of undesignated client accounts poses a serious threat to an agent’s business. It is not uncommon for letting agents to manage hundreds of properties, yet many banks have now requested the agent hold an individual account per property. Even if banks allow the agent to hold that number of individual accounts (which is not guaranteed), it is infeasible to manage that many accounts.
While Propertymark continues to work with banks to limit the number of accounts that are closed, more action is needed from the UK Government to ensure banks understand the legal obligations of letting agents and the anti-money laundering supervision rules.
Additionally, Propertymark has long called for the regulation of property agents and for the UK Government to bring letting agents under the scope of Money Laundering Regulations, remove the monthly rent threshold, which would provide banks with the reassurance they need, that the property sector is being policed correctly and clarity on where the money is coming from. Consequently, this would reduce a barrier that can make it hard for estate agents and letting agents to operate.
I have attached a briefing which explains the situation in more detail, and I would be extremely grateful for an opportunity to meet you and your officials to discuss the issue and find solutions that reduce barriers for letting agents to operate. Your office can liaise with Timothy Douglas, Head of Policy at Propertymark via email and telephone.
I look forward to hearing from you.
Nathan Emerson MNAEA MARLA MNAEA(Comm.)
Chief Executive Officer