Given how distant most major banks are from their business customers it is perhaps unsurprising that they do not always understand the legal responsibilities and the consequent working practices of letting agents.
Following a series of high-profile account closures, Propertymark has written to the Rt Hon Jeremy Hunt MP 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 they perceive them as a risk to their compliance with Anti-Money Laundering Regulations. However, 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.
The letter to Jeremy Hunt reads as follows:
Dear Chancellor,
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 antimoney 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 timothydouglas@propertymark.co.uk and telephone 07920 588936.
I look forward to hearing from you.
Best wishes,
Nathan Emerson MNAEA MARLA MNAEA(Comm.)
Chief Executive Officer
Propertymark
Good to see that after our bonfire of EU red tape, we are still taking the default stance that everyone is a terrorist unless they can prove otherwise.
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Not Brexit again
ZZZZzz
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Lloyds are doing this to a local agent in Bristol. HMRC have written advising that they do not need to register and, even if they did, HMRC would not supervise them. However Lloyds create their own rules and are closing the client account. Without a client account an agent cannot get CMP. Without CMP an agent cannot be a member of a Redress Scheme, so effectively Lloyds can close down a business without any system for appeal. No doubt the clause is hidden in the “Because we say so” paragraph.
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Had the same issue with Lloyds. Eventually bit the bullet and closed the account and went elsewhere.
They wanted us to open individual client accounts for every Landlord, Tenant & Contractor at £5 pcm each and get written letter of authority from everyone so that we could deal with account issues on their behalf in relation to said accounts… absolute madness.
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Who did you go with?
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Glad to see Propertymark eventually waking up to this issue
I have clients who first faced this issue with their banks in 2020 and, whilst I’ve helped them resolve, it has been ponderous, concerning and unnecessary.
The other element that needs addressing is the current CMP scheme definition of a bank that currently means an EMI (electronic money institution) based provider cannot operate despite having, what could be argued, is better protection than an ordinary bank that only has FSCS protection (up to just £85,000) rather than FCA protection that is much greater.
Ironically card providers and the banks themselves often use EMI yet the definition of bank as far as the CMP schemes are concerned excludes.
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This is a top priority.
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Further to my note above about EMI operations it is now clear that DLUHC will not change the definition of a bank which the CMP schemes require and so that will, IMO, now lead to alternate banking solutions from providers that want to be in the lettings client accounting space, unlike many of the traditional banks.
I expect exciting announcements on solutions for agents in the coming weeks.
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I am currently having the exact same issue with Lloyds and whilst we now have around 90% of the information they require, they are pushing me to sign an attestation confirming that I can provide all the information regarding our clients without delay, if asked, which currently I cant despite our best efforts. Being in Wales, I have tried to explain that our small lettings team have been concentrating on dealing with the huge upheaval the Renting Homes (Wales) Act has caused and that these changes are in fact legal requirements, unfortunately Lloyds don’t care. Any advice please?
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Would be useful to see the briefing.
Coming at this from personal experience wtih Lloyds.
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Had the same problems with lloyds bank. Had banking with them for 20 years, yet trying to get their client money department to understand how letting agents operate was totally fruitless. Whilst our account managers agreed this was all wrong, they held no autonomy to help. The bank wanted seperate account’s for each landlord which would have increased our annual bank charged from £350 per annum to £35,000 per annum. The figure is correct £35k because they had to change to different commercial banking fees. Also no agent can operate hundreds of seperate bank accounts. The bank knew this and you had to deal with a client banking department in Edinburgh who had no idea. Lloyds considered we were high risk. Yet located in rural part of the country with average rents only £700 to £800 a month, highest rent was £1600 a month. A far cry from the 8000 euro a month figure. They stated they did not like our money laundering policy, yet refused to assist with providing any reasons what parts or part they were not happy with. As a independent simple one branch office estate / letting agent we were expected to provide a document that would be the offering from a large multi national company with its own in house legal department. Reading financial ombudsman (FO) conclusions for agents that complained the FO only stated that a banks policy was up to them and that FO had no means to change this. In end forced to chance to another bank as bank closed the account despite my strong objections. At the time spoke to many a professional body though none were able to assist. Though hopefully now some rational common sense can prevail.
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Which bank are you with now?
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With natwest. Though even here I got mixed opinions depending on who you spoke to. Some nat west staff saying natwest was not opening client account’s. I managed to speak to local nat west business rep for the area who put me in contact with the regional sales rep and they opened the accounts for us. We are located in Gloucestershire.
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I managed to open a Metro account without too much trouble, other than the usual incompetence.
However, I have heard that Metro is one of the Banks amongst others, guilty of closing accounts.
Natwest, I would avoid like the plague after recent news.
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