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New Money Laundering Regulations: First the bad news – more red tape


Assuming there are no major changes to the draft Regulations and assuming the implementation date of June 26 doesn’t change, here are a few more implications estate agents need to be aware of.

Regulation 21 indicates that agents may have to appoint a compliance officer who will be responsible for ensuring the business remains compliant.

This person must be a member of the board of directors, or someone in an equivalent position if the business is not a corporate entity. HMRC must be notified of the identity of this person.

I say, ‘may’ have to appoint this person, because the Regulations do exempt sole traders who do not employ anyone (who might those be?) and they allow HMRC to publish guidance to specify whether other businesses will be exempt from appointing this compliance officer. We have no idea if they will exempt any other businesses, but personally, I doubt they will!

That regulation goes on to stipulate that agents will need to have independent audits carried out to –

  • Examine and evaluate the effectiveness of AML policies, controls and procedures;
  • Make recommendations in relation to those policies, controls and procedures;
  • Monitor the agents compliance with those recommendations.

It will again be down to HMRC to put more flesh on the bones of this requirement in their guidance.

We must assume HMRC will clarify the frequency of these audits and whether the use of the words ‘independent audits’ will mean using external auditors? Given that the Regulation is headed with the words ‘Internal Controls’ you could assume agents will not require external auditors, but other wording in the regulation points towards external audits! We will need to await the guidance.

Failures in these areas can result in HMRC penalties, which have no upper limit. The Regulations simply state that any penalty must be effective, proportionate and dissuasive, which we can assume means they will not be small amounts. We can also assume it means they will be higher the larger the organisation.

Sub-agency made simpler

There is a little good news, because the new Regulations allow agents to rely on the Customer Due Diligence (CDD) measures taken by another agent.

Under the old Regulations estate agents were not permitted to do this – something which caused uproar at an NAEA meeting in London – and so the change should make sub-agents’ compliance simpler. It could also make life easier for agents working on joint and multiple agency agreements, if they can agree between themselves who is to undertake the CDD.

To take advantage of this an agent must get written confirmation from the other agent that they will provide the information and documentation obtained when conducting CDD. The down-side of this is that if the initiating agent gets it wrong, both agents can be liable.

A little more good news is that corporate clients of estate agents will have an obligation to provide appropriate company information to the agent within 48 hours of request. This information includes –

  • Company name, registered number, registered office and principal place of business; and
  • The names of its board of directors, or the members of its management body;
  • The names of its senior management;
  • The names of its legal owners and/or beneficial owners.

The client company should also provide its memorandum of association or other governing documents.

Failure to comply means the client company can be hit with a penalty, and so in theory this should make CDD a lot simpler for agents acting for corporate clients. In practice, many companies will balk at the thought of having to provide all this information. Many smaller companies will continue to provide little or nothing to the agents they instruct and even some of the larger ones will be selective about what they provide. How many agents are going to report a client to HMRC for not providing the information?

  • David Beaumont runs the completely free EYE compliance helpline. He will continue to provide EYE readers with further updates up to and beyond the implementation date of these new Regulations. If you have a specific query on this or any other compliance matter and are an EYE subscriber, give David a call on 0161 727 0798 for free advice.

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