New anti-money laundering rules for letting agencies from January 2020
Changes to Anti-Money Laundering (AML) rules should not be overlooked, despite everyone’s main focus currently being the upcoming General Election.
On 10th January 2020, new AML rules will be put in place. Lettings payment automation provider PayProp says that while the political future remains unsettled, with a raft of new rented sector policies put forward, agencies should instead focus on remaining compliant with existing and confirmed incoming regulation.
This will be the first time that letting agents will explicitly fall under the scope of AML rules. PayProp warns that with just a few weeks to go before the Fifth Directive comes into force, letting agents must act now to avoid falling foul of the law.
The only certainty is continued uncertainty
We expect the outcome of the election to provide some clarity over the country’s future direction. However, questions will remain about housing policy, as well as other issues (such as Brexit) that affect housing.
Neil Cobbold, Chief Operating Officer of PayProp UK, comments: “The three major parties have a range of different plans for the rental sector.
“The Conservatives have proposed to introduce Lifetime Rental Deposits and committed to scrapping Section 21.
“Meanwhile, Labour have put forward proposals for rent controls and annual property MOTs, while the Liberal Democrats have pledged to introduce mandatory landlord licensing and a Help to Rent scheme.
“After December 12, there will undoubtedly be new rules for agents to think about. However, they may need to be consulted on and will take time to implement.”
“Agencies should, therefore, focus on more certain compliance issues, particularly the Fifth Money Laundering Directive which comes into force in January no matter who wins the election.”
Agents must focus on AML procedure
These new rules for EU AML will require letting agencies to carry out checks on landlords and tenants involved in rental transactions of €10,000 or more per month. This is currently equivalent to approximately £8,500.
We are still waiting on the Treasury to publish the legislation that would transpose the Fifth Directive into UK law. However, the consultation highlighted that it should be considered whether this threshold should be lowered. Whether or not self-managing landlords should also be covered by the new rules is also in question.
Cobbold says: “While the Fifth Directive may not affect all letting agencies, those which are impacted will be required to take on significant additional work.
“Given that we do not yet know how high the threshold will be set, estate and letting agents of all sizes should stay informed about their potential obligations under AML rules.
“As well as carrying out the necessary checks on landlords and tenants, letting agents will need to consider Politically Exposed Persons.
“Letting agents are also likely to have to register with HMRC for supervision, although the government is considering allowing industry bodies to supervise.
“This regulation will most likely affect both high-end letting firms and agencies with landlords that rent out multiple properties. It’s important that all firms are clear on whether their current transactions come under the scope of the new rules – and on what is required should they need to make checks on high-value transactions in the future.
“We know that HMRC enforces anti-money laundering rules very strictly, so agencies need to make sure they have all the necessary procedures and contingencies in place.”
Expect further AML obligations
Even if some letting agencies do not fall under the new AML regulations, Cobbold believes that they should still prepare for further directives that could affect them in the future.
Cobbold suggests: “The evidence shows that AML regulation is only getting tighter and could eventually cover all lettings and sales agents.
“After a gap of almost 10 years between the Third and Fourth Directives, there has only been a period of just over two years before the implementation of the Fifth Directive. Therefore, agents should be aware that further legislation could appear sooner rather than later.
“To prepare for AML compliance, agencies should review their due diligence processes and ensure staff are aware of the checks they’ll need to make.
“It could also be beneficial to look at payment systems and consider ways in which automation can make compliance processes more efficient and less prone to human error.”