It’s so obvious that regulation of the lettings industry is overdue, given the sums involved, that to criticise the Government’s latest announcement of legislation which will introduce measures such as a new regulator, a code or practice and mandatory qualifications, looks perverse.
But let me persevere.
There is no obvious competent regulator amongst the plethora of competing interested parties.
I have direct experience of ARLA and NALS as regulators and both unintentionally “pass” for membership businesses which on closer examination are not compliant with client accounting best practice.
The problem is that they rely on self-certification from accountants who sign off membership paperwork and some of whom either don’t know or don’t care if client funds are intact.
We have close to 300 independently owned traditional high street estate agents and letting agents within our franchise group.
We employ two full time client account auditors to keep a handle on things. This represents a cost for client accounting regulation to us as a franchisor of around £400 per office per year. To our franchisees the service is provided “free” unless they are non-compliant. So a new regulator who is going to take their job seriously will need to charge at least around £500 per year per office.
Costs could be higher still. Ireland introduced compulsory licensing of letting agents in 2012 and the fee for a sole-trader business with a principal and four other employees is 1,950 euros per year, recurring.
Consider the wider industry picture: with no common cloud based client accounting software in place for all businesses, this means that client account auditing requires a physical visit to a site to check data and reconcile to bank accounts.
We talk about the bad guys (a tiny minority) being driven out by regulation and the rest of us good guys remaining.
But what if regulation frames quite a lot of us as the bad guys? Not really bad of course, not thieves. But maybe using rents as a free overdraft by collecting it all on the 1st and paying it out to landlords on the 28th?
Or using the client account to pay wages when the completion monies did not arrive as expected? Why do agents use insurance-backed schemes for deposit protection when the interest they are receiving is so derisorily low? Unless the deposits are in a higher interest bond somewhere, maybe off-shore in the owners name?
So a thorough clean-up could have very far-reaching implications for a big group of average agents. The story of the clean-up of the financial services sector is well known but worth repeating – the regulatory hurdles, training regimes, compliance trails and costs became so burdensome that around two-thirds of independent financial advisers quit the sector.
Those that were left mainly decided to put themselves under the protection of organisations such as Mortgage Advice Bureau who could provide the regulatory and compliance framework that was too expensive and time-consuming for the smaller players to put in place for themselves.
Is this the future for our industry?