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New money laundering regulations clause is either wrong – or means big impact for agents

MY DEPOSITS
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Everyone in estate agency is now conducting ID checks on buyers, given the requirements of the new Money Laundering Regulations that came into force in June.

The concept of having to conduct ID checks on purchasers is in my opinion ridiculous, as I have previously stated on EYE.

It is the wording in Regulation 4(3) that drags in purchasers, and who knows if anything will ever change.

We will need a successful legal challenge to the Government to get a change to the obligation.

However, on closer reading of the wording in this Regulation there may be a major flaw that has gone unnoticed.

“4(3) For the purposes of these Regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser’s offer is accepted by the seller.”

The Regulation outlines that for the purpose of these Regulations estate agents enter into a “business relationship” with a buyer. Everyone has read the wording in that way and so ID checks are carried out on buyers, once an offer has been accepted.

But, read the Regulation more closely? It specifies that an agent enters into a business relationship with a buyer, as well as a seller at the point when the purchaser’s offer is accepted.

As this Regulation defines the meaning of business relationship for the purposes of the Money Laundering Regulations only, it must be concluded that agents only enter into a business relationship with their client, the seller, at the point the purchaser’s offer is accepted by the seller.

If that interpretation is correct (unintentionally or otherwise) it changes the game massively for agents, because they will not be required to carry out ID checks on clients at or before the point they accept instructions to market a property by a seller: they will be able to wait and conduct ID checks much later in the selling process.

This would make life so much simpler for agents!

I fully accept that this is an interpretation argument, and lawyers might make lots of money out of arguing it both ways, but when you read the Regulation from that slightly different perspective it does feel persuasive.

It could be argued, of course, that agents enter into business relationships with sellers at the point of instruction, and so there is no way around that. But look again at the wording in the Regulation.

It states that for the purposes of these Regulations, agents enter into business relationships with purchasers.

Agents don’t enter into such relationships in reality, but now they do ‘for the purposes of the Regulations’.

That being the case, then surely, the same logic must apply the other way round? Agents do enter into business relationships with sellers at the point of instruction, but the wording states that for the purposes of these Regulations, they do not enter into business relationships with the seller until the offer is accepted by the seller.

If the Regulations can change the meaning of business relationship one way, surely it must also apply the other way.

There is another linked argument that says acceptance of an offer can only take place at exchange of contracts, because any informal agreement to sell a property is not binding and an offer is only accepted at exchange of contracts.

If either of these interpretations is correct, it does change the whole shooting match for agents and for HMRC, and it potentially makes a complete mockery of the Regulations in their application to estate agents.

However, I am sure that those very intellectual lawyers who wrote Regulation 4(3) will be able to come up with an amendment to correct the flaw in no time at all!

David Beaumont runs EYE’s free compliance helpline for our subscribers, and heads up Compliance-Matters, a business specialising in providing compliance services to agents on money laundering and the many other compliance requirements agents must meet.

The free helpline is on 0161 727 0798

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Source:: New money laundering regulations clause is either wrong – or means big impact for agents