Money Laundering Regulations 2020

Tuesday, January 21, 2020

We have waited 18 months for these new Regulations and during that time there has been plenty of speculation about what they would contain.

We have had the usual nonsense statements coming out from all and sundry warning agents to be ready for the 10th January 2020 or risk heavy fines!

How any agent could be ready for these new Regulations beats me! They were only published 2 weeks before they went live and compliance is linked to meeting the Supervisory Authority requirements, which must be outlined within guidance that has not been published yet. My understanding is that the current estate agency guidance is being amended to include lettings.  It is currently with the Treasury where approval for the content is being obtained and this is likely to take another 4-8 weeks and so we are hoping for publication at the end of February/Early March.

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 or 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 we have the amendment Regulations I would say that a very small percentage of residential letting agents need worry about them.

There will be an impact on some commercial agents, because the regulations do not differentiate between residential and commercial.

As such, letting agent will become regulated if they act 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). 

These regulated letting agents will need to conduct Customer Due Diligence (CDD/KYC) on landlords and tenants, guarantors and permitted occupiers of those high rental properties.  How this will work in practice will depend on what the HMRC guidance contains, but it will only involve those high rental properties and I suspect it will involve similar steps to those estate agents are required to conduct.

My advice, in the short term, for agents that are affected, would be to start –

  1. Obtaining the title register document to confirm ownership;
  2. Conducting a simple risk assessment on all the parties;
  3. Conducting appropriate CDD/KYC on all the parties to the tenancy, depending on the risk assessed;
  4. Requesting confirmation from tenants on the source of the funds being used to pay the deposit and 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 2 things –

  1. 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; &
  2. 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 10th January 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 recognized 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 is the Managing Director of Compliance-Matters and if you would like more information on any compliance aspect of the Money Laundering Regulations, whether it be sales or lettings obligations or would like more information on their AML Compliance Platform for agents, David can be contacted on 0161 727 0978.