New anti-money laundering laws – Money Laundering and Terrorist Financing (Amendment) Regulations 2019 – come into force tomorrow.
We have waited 18 months for them and during that time there has been plenty of speculation about what they would contain.
But what in reality will be the impact on sales and lettings agents?
We have had the usual nonsense statements coming out from all and sundry warning agents to be ready for tomorrow (January 10) or risk heavy fines.
But how could any agent possibly be ready for these new Regulations?
They were only published two weeks ago. Moreover, compliance is linked to meeting the supervisory authority requirements, which must be outlined within guidance that has not been published yet.
Don’t get me wrong: compliance is very important and penalties are issued against non-compliant agents, but it is going to be some time before we know exactly what is required before penalties are issued.
The main concern about these Regulations was the addition of letting agents into the regulated sector.
It was, however, fairly clear beforehand that most letting agents would not be affected, and now that we have the new Regulations, I would say that only a very small percentage needs worry about them.
There will be an impact on some commercial agents, because the Regulations do not differentiate between residential and commercial.
As such, a regulated agent will be one working for a client (or clients) in relation to any type of tenancy or rental agreement that is for a term of one month or more, where the monthly rental amount on an individual rental agreement is equivalent to 10,000 euros or more.
That equates to a monthly rent of (currently) £8,484.41.
These agents will need to conduct Customer Due Diligence (CDD/KYC) on landlords and tenants, guarantors and permitted occupiers of those properties. How this will work in practice will depend on what the HMRC guidance contains, but I suspect it will involve similar steps to those that estate agents are required to conduct.
My advice to agents that are affected would be to start –
- Obtaining the title register document to confirm ownership;
- Conducting a simple risk assessment on all the parties;
- Conducting appropriate CDD on all the parties, depending on the risk assessed;
- Requesting confirmation from tenants on the source of the funds being used to pay the rent.
Additionally, those agents that become regulated must register with HMRC in the same way estate agents have been doing for some years. Estate agents that also do lettings should already be registered and they will not need to register again. They will simply be required to amend their current registration to include lettings, at their renewal date.
However, this will not be possible for a couple of months, as HMRC are updating their registration system.
Those businesses that are solely letting agents will need to do two things –
- Ensure the principals, directors or partners obtain approval from HMRC to act in such a capacity, just as those individuals within estate agency businesses have done since the 2017 regulations were introduced; and
- Ensure the business registers with HMRC.
There is plenty of time for agents to do this, as the deadline for both these actions is set at January 10 next year.
The amendments also have little impact on estate agents’ day-to-day actions regarding customer due diligence, except that online electronic verification of identity reports are now formally recognised as a reliable source which is independent of the person whose identity is being verified.
This route is useful to confirm a person’s identity in lower risk situations and useful when enhanced due diligence is required.
It is particularly useful for confirming whether a person is politically exposed or on the Treasury’s Financial Sanctions List, but the use of electronic verification systems is not a mandatory requirement on agents.
The changes also outline additional steps to be taken where enhanced due diligence (EDD) must be carried out on sellers or buyers who are resident in one of the countries assessed by the EU as “high risk third countries”. There are currently 16 such countries.
Once the guidance from HMRC is published we will have a clearer understanding of the practical steps regulated letting agents will need to take.
- David Beaumont is the managing director of Compliance-Matters and also provides the free compliance advice line to EYE subscribers. He can be contacted on 0161 727 0978.
Called HMRC today………..They also do not know what is happening for Letting Agents. There is no way you can apply on their site! I was told on the phone that there will not be any way of applying until May at the earliest. But I need to conduct my business as if I was registered. (which is what TPO would expect anyway) What a shambles!
Oh and whilst on the phone I did manage to point out to the guy that this whole piece of legislation feels like shutting the stable door after the horse has bolted. I asked him if HMRC had any idea of how many billions of IRA drugs money had been laundered into property in Norther cities during the nineties and early 2000s, but he didn’t seem to know what I was talking about.
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Regulation (7A): letting agent must also apply customer due diligence measures in relation to any transaction which consists of the conclusion of an agreement for the letting of land (within the meaning given in regulation 13(7))—
(i) or a term of a month or more, and
(ii) at a rent which during at least part of the term is, or is equivalent to, a monthly rent of 10,000 euros or more.
But does this mean ALL “lettings agents” will need to register? Regulation 55 (3) is amended that “Letting Agents” to be added as relevant persons for registration. It doesn’t define if not operating within regulation 7(a) still requires registration which is all about due diligence requirements if they arise.
Regulation 55 (4) Where a registering authority decides to maintain a register under this regulation, it must take reasonable steps to bring its decision to the attention of those relevant persons in respect of which the register is to be established.
Who has heard from HMRC?
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Only letting agents who have tenancies starting from today where the rent is 10,000 Euro+ monthly rent must apply for registration. If they have existing tenancies they will not fall under the regulations until the tenancy is renewed or it moves into periodic.
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All ‘estate agents’ (sales) have to register if your business carries out any work defined as estate agency activity.
What is the difference for lettings considering Regulation 55 (3) is what makes estate agents mandatory and has added lettings to required activity registration and makes NO reference to conditional?
I ask because it would seem the common advice from those outside of HMRC are hooked up on 10k rent when “due diligence reporting” under a different section 7(a) is required, never mentions exemption from registration if rent is below 10K.
HMRC say Letting agents have 12 months for registration. The 2019 Regs are only “amendments” to change add or delete in current 2017 Regulation. Does the risk assessment etc still not apply for Lettings now added under Regulation 55 (3)? I’m expecting the intention is as everyone seems to imply, but it doesn’t say it.
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