A major row is erupting over the new anti-money laundering regime which came into force yesterday morning (Monday) after estate agents were given just one working day’s notice and arguably less.

According to a letter EYE has seen, the Royal Institution of Chartered Surveyors is now threatening legal action if the Treasury does not immediately suspend enforcement of the new regime.

The Fourth Anti-Money Laundering and Terrorist Financial Directive was brought into force via Regulations passed at 4.23pm last Thursday.

The RICS sent its letter the following day, and the final version of the Directive was apparently made available only yesterday.

With so little warning, estate agents could easily find themselves in immediate breach of the law, which now requires them to perform checks on both buyers and sellers, and means a significant updating of their systems.

If they do breach the directive, agents face receiving a heavy – and unlimited – financial penalty.

However, HMRC guidance has not yet even been finalised and a two-week ‘closed’ consultation on this guidance does not even conclude until this Wednesday. The consultation went out to some agents, and not to others, plus to some industry specialists, but again apparently not others.

The RICS made its anger plain in last Friday’s letter from its chief executive, Sean Tompkins, to the Treasury demanding that the enforcement of the regulations is suspended to allow proper consultation and to allow estate agents to update their processes.

In the letter the RICS said it could bring an urgent legal challenge in the High Court, and seek an injunction to suspend the Regulations. If it does, it will seek to recoup its costs from the Treasury.

Yesterday afternoon, an RICS officer did not specifically confirm the threat of legal action.

However, Luay Al-Khatib, director of regulation at the RICS, told EYE: “The new anti-money laundering regulations have been brought in with less than a working day’s notice, giving firms one business day to update processes and procedures to meet the requirements of the new legislation.

“The guidance from HMRC for the estate agency sector has not been finalised or properly consulted upon with the sector. In fact, a two-week closed consultation on this guidance concludes on Wednesday which is after the Regulations come into force. Those selected for consultation also had only four business days to provide comment on the correct draft.

“Without reasonable time to update processes and the clarity needed on how the new Regulations should be implemented, firms are at risk of breaching their legal obligations and legitimate property transactions are at risk of being jeopardised.

“RICS is committed to playing its part in tackling money laundering and to ensuring the profession meets the standards expected of it. This is why we have worked constructively with Government on this important issue throughout the emergence of this legislation.

“However, the consultation on how the Regulations will be implemented has been inadequate and we are concerned this will be counter-productive.”

Law firm Gordon Dadds has also criticised the “minimal prior warning” given to the industry, warning that the latest directive will be a financial burden to estate agents, doubling admin, increasing costs and slowing down the buying process by up to 186 days.

It warned: “There will also need to be formal risk assessments and nominated officers will have to be reappointed if not currently an executive sitting on a board (or equivalent) of the business.”

It said agents will have to update their usual terms of business and train staff, “and in a high proportion of cases, estate agents need to recruit staff in order to help with the administration burden. We estimate this could cost the largest estate agents a combined additional cost of £6m”.

The complications of the new regime were stressed by Gordon Dadds partner Alex Ktorides who said: “The Directive is a shake-up of the way that banks, estate agents and other parts of the regulated sector apply a risk based approach to customers.

“They will now have to consider the characteristics of the customer, the product and its distribution and the jurisdictions involved in determining the lengths that they have to now go to in terms of conducting due diligence on their clients.

“There is even a new requirement to force overseas branches of UK parent companies to apply UK standards. This will cause huge concerns to international businesses and even encourage moving head office from the UK.

“The property sector now has to act quickly in order to ensure it complies with the Directive. The purchasers and the seller are both now included in the application of customer due diligence, meaning additional checks will need to be carried out by estate agents, auctioneers and surveyors.

“This is going to create substantial challenges for the property sector, especially given the final version of the directive has only been made public yesterday, which has left no time for banks, estate agents and the lending sectors among others to update their policies and processes alongside training staff on the new regime.

“Some agents have in excess of 100 branches and have received no prior time to implement the new processes in order to comply.

“For many smaller estate agents (and surveyors) this will be the first time they will have carried out checks on both the buyers and sellers and they are going to have to get up to speed with the regime as quickly as possible or risk facing an unannounced visit from the HM Treasury.”

Luca Primerano, of anti-money laundering specialists Fortytwo Data, said: “With terrorist attacks on the rise, any legislation that creates a more hostile environment for the funding behind them must be welcomed.

“The problem is, however much due diligence and additional risk assessment the new legislation introduces, it cannot be relied on to solve illicit money flows once and for all.

“The level of sophistication that today’s terrorist and criminal organisations use to launder their money is frightening, and while the new legislation is a step in the right direction strategically, operationally the average company or financial institution is light years behind the techniques being employed by terrorist networks.”

There was a Treasury press release, dated last Friday, although it is not known what time. It is not clear if it was proactively sent out, for example to trade press, and EYE was not sent it.

In it, Stephen Barclay, economic secretary to the Treasury, said: “These new rules will tighten our defences, protect the integrity of our financial system, and help protect the British public from terror attacks and criminal activities.”

The press release did not mention the almost non-existent timescale, only that the new rules were coming into force yesterday, and that businesses including estate agents would have to carry out “stringent and targeted checks”.

EYE will carry an expert update for our readers from David Beaumont within the next few days.

https://hmtreasury-newsroom.prgloo.com/news/crack-down-on-terrorist-and-criminal-financing