Countrywide’s transfer of over £10m of unclaimed client funds into an office account was company policy – but it was not deceit.

Responsibility for the accounting practice lay at senior management level, with the un-named person or persons now apparently having left.

The money transferred was then booked as profit.

The revelations are in paperwork now available about the case.

It says: “The decision to retain these funds was a policy decision made at a senior management level by personnel employed at the time by the firm and was not the product of deceit.

“Management at the firm has since changed, and the current CEO, appointed in 2018, provides a witness statement setting out his disapproval of the firm’s decisions and actions.”

The paperwork also reveals that:

• The practice at Countrywide Residential Lettings was discovered during a routine visit by the RICS.
• The RICS and Countrywide had initially agreed on a fine less than the £100,000 imposed at last Wednesday’s disciplinary hearing.
• Countrywide, in accepting the charges, recognised that they were serious and “liable to bring RICS into disrepute”.
• The disciplinary panel expressed concern that the case involved a “household name” which had transferred funds “which it knew did not belong to it and had “declared those funds as profits”.
• Countrywide has since changed its procedures: it will now either retain client money in a client account or pay it to charity.

The transfer of unidentified client funds took place over ten years until 2018. The £10,093,866 represented client money that had not been claimed for six years or more. Under RICS rules, this was not permitted.

The panel had been asked to consider the facts of the case plus the agreed sanction – the £75,000 fine, plus a reprimand, costs of £600, and publication of the case.

The facts

Looking at the facts, the disciplinary panel heard that Cherry Leeder and Ian Bellis of the RICS had visited Countrywide as part of a regulatory review. The review found that the money was transferred from a client account into an office account held by the group.

Countrywide operated this as a policy, says the paperwork. The group had indemnified Countrywide Residential Lettings, agreeing to return funds should a rightful recipient come forward.

On August 2 last year, following an internal audit, the group acknowledged the issue in its interim report, which said that “a liability of £4,681,000 in respect of certain untraceable orphan funds” had been recognised in the group’s balance sheet.

The disciplinary panel also heard that as result of that audit and the firm’s engagement with the RICS, the full sum of just over £10m had been transferred into the client account.

Charity

The panel also considered arguments as to what should have happened with the unclaimed money.

The RICS said that its guidance was that after six years, unclaimed client money “may be donated to a registered charity”.

Countrywide seems to have initially suggested that by allowing firms to donate such money to charity, the “RICS undermines its own argument that money held outside of client account is not held safely”.

The RICS disagreed with that, saying that its client money guidance is “clear and unambiguous”. Countrywide, the panel heard, accepted that it was aware of the guidance, and had not contacted the RICS to ascertain if it was prohibited from retaining the funds.

Countrywide agreed that the guidance was that unidentifiable money retained in the client account should have been paid to a registered charity in exchange for an indemnity to return those funds if required.

However, there is no reference in the documentation now available about the case that there was a donation to charity.

Declared as profits

In its considerations the panel looked at both mitigating and aggravating features.

It said: “The panel was concerned that this case involved a household name which had, over a protracted period of time, systematically failed to preserve the security of client funds.

“It had transferred into the firm’s office account funds totalling over £10m which it knew did not belong to it.

“In fact it declared those funds as profits, declaring them as such in its financial returns, rather than treating them in accordance with the rules.

“This had an inevitable impact on public confidence and clearly represented conduct liable to bring RICS into disrepute.”

However, several mitigating factors included that the conduct was part of a transparent policy, which had been ratified by previous senior management.

Countrywide had co-operated and apologised, and had taken steps to return the money to the client account.

Accordingly, the panel decided on a fine of £100,000, reprimand and costs of £600 to be paid by Countrywide.

The RICS’s Hon. Secretary could require a review of the finding or penalty, but would have to do so within 28 days.

Witness statement by Paul Creffield

Previous management of Countrywide were blamed by the current managing director of Countrywide, Paul Creffield.

He said: “With the benefit of hindsight, I can see that my predecessors failed to arrest as I believe they ought to have done, what became an established accounting practice in the lettings business in connection with orphan funds.”

Creffield’s witness statement is part of the paperwork now available online in relation to last week’s disciplinary hearing.

In his statement he stresses the sheer size of Countrywide.

With its residential sales, lettings, surveying and conveyancing businesses, it is the largest residential property services group in the UK. There are 750 branches, 10,000 staff, plus 1,000 in the Lambert Smith Hampton commercial division. Countrywide is also a large mortgage broker.

Lettings is operated from about half of the branches.

In his statement Creffield says: “Our presence in local communities and the brands are very important to us. Their reputation is paramount. That is why we fully embrace regulation in the sales and lettings field.

“It is no exaggeration that serious damage to the public reputation of the Countrywide name could have catastrophic commercial consequences for the group and for all our investors, including shareholders and pension funds.”

Creffield goes on: “Under my leadership, we are taking and will continue to take professional regulation very seriously indeed… It is my intention that the Countrywide Group will actively support the forthcoming regulation of property agents known as RoPA.”

In his statement, Creffield said that the client money situation was first brought to his attention in 2018: “I was very concerned indeed. From a personal viewpoint as group managing director, what happened does not sit well with me…

“After an internal review, I put an immediate stop to the practice.”

Creffield said that all the sums in question have been repaid to the client account: “Where there has been any doubt about whether particular sums in the office account should be repaid, that has been resolved in favour paying the money back into the client account.

“This may in fact mean that there has been an overpayment of funds … of over £100,000.”

The full paperwork is here:

https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/regulation/panel-hearings/disciplinary-panel-hearings/2019-10-30-dp–countrywide-residential-lettings-.pdf