The long awaited and very late Draft Money Laundering Regulation Consultation has now been published and it was nothing if not a surprise for us all in two distinct ways.
Firstly, because they have not added something that was expected and secondly because they have added something that will create major problems for estate agents.
Astonishingly, letting agents are not to be included within the regulated sector. It did appear to be a nailed-on certainty that they would, but for completely surprising and unconvincing reasons they remain outside the scope.
One of the Governments arguments for not including the sector was that landlords who let out properties without the use of a letting agent would not be caught and this would ‘leave a significant gap in coverage, as there would be no oversight of an agentless business relationship’.
Is that not what happens with property sellers who do not use an agent? So what is the difference? I suppose the difference is that most agentless sales situations have solicitors involved who do conduct CDD on their clients! The lack of change means no landlords are ever checked.
Surely, including letting agents would at least have meant the majority of landlords would be subjected to CDD. A large proportion of letting agents currently require landlords to provide ID. This is done to protect themselves from unscrupulous people who may wish to defraud the agent, or the real property owner and so the cost implications of including letting agents would not have been significant.
I must also point out that there is a misleading sentence in the consultation as it states that ‘letting agents will continue to be within the scope of the regulations where they carry out estate agency work …’
It reads as if businesses doing sales and lettings must comply, but that agents solely doing lettings do not need to comply. For clarity, lettings transactions are not controlled by the old or the new Money Laundering Regulations, regardless of whether you are also a sales agent.
Even worse, is the change that will require agents to conduct CDD on buyers. This was not a surprise, given that its inclusion was promoted by various organisations! However, it is crazy and I guarantee it will create masses of problems, because the practicality of implementing CDD on a buyer has various insurmountable problems.
The buyer has no contract with the estate agent and so the agent has no control over the buyer to force them to provide the required ID documents. With sellers, you have a level of control over the customer you are required to conduct CDD on. The control is simple – you will not enter into a business relationship with the seller if they do not provide you with relevant information.
This is not and cannot be the case when dealing with buyers – you are powerless.
Furthermore, the Estate Agents Act requires agents to pass all offers made for a property on to the seller in writing immediately, as such a refusal by a buyer to provide any proof of identity to the agent will mean either, they pass on the offer details to comply with EAA and breach the MLR, or they refuse to pass on the offer until ID is provided and comply with MLR but breach the EAA.
If, however, the Regulations define a person as becoming a buyer later in the process, i.e. once an offer has been accepted, the problems become even greater, because agents often never have any contact with the buyer from the point an offer is accepted, because the transaction is then passed to solicitors.
How then can they be expected to meet the statutory obligation of obtaining a buyer’s ID? It’s not possible and agents will have to rely on buyers goodwill or breach the Regulations.
It is for this reason I have been critical of agents obtaining buyers ID for some time, and I have been critical of those in far more influential positions than me that have been promoting it as best practice. Well let’s see how it pans out.
The consultation is here.
* David Beaumont, a former Trading Standards officer who has been advising on compliance for agents for many years, is running EYE’s newly launched compliance helpline. This is absolutely free, with no catches, and is exclusive to our subscribers whether your query is to do with sales or lettings.
The number to call is 0161 727 0798.