Compliance...Compliance....
As
our compliance officer and often referred to as the fun Police, I thought it
might be an appropriate time to provide a little reminder of some compliance
obligations. Don’t blame the messenger…. get in touch and we can help you
tackle the headache of compliance.
Client
Money Protection Schemes
If
you are a letting or property management agent in the private rented sector in
England, it is common knowledge that an agent who holds clients’ money must
join a ‘client money protection scheme’. By failing to do so may result in a
fine of £30k. There is also the requirement to provide free of charge the
certificate and display it in any office where you deal with the public and on
your website. A failure to do this could result in a fine of 5k.
For
some, a problematic requirement of the scheme is for agents to have an
appropriate client account in place. Appropriate client account involves pooled client accounts, which in essence holds money for a number of
clients in a single account. The issue with pooled accounts is that the
funds belong to the client and not to the business. As a result this presents
money laundering risks because client funds are put together and therefore how
do you differentiate between each clients’ funds (said the bank manager).
This
in turn has meant some banks are not prepared to offer this banking facility,
meaning agents will not be able to comply with their legal obligations.
Unhelpful. The Government has recognised these issues and has been working with
the Joint Money Laundering Steering Group through UK Finance to update
their guidance on compliance with the Money Laundering Regulations. It is hoped
the forthcoming guidance from the Joint Money Laundering Steering Group will
better help banks understand the low risk letting agents present, allowing them
to continue offering pooled client accounts.
As
it stands agents have until 1st
April 2020
to obtain a pooled
client account. This date is fast approaching and for some agents whose
bank are not keen why should they be penalised? Hence we now have draft
regulations to amend this date to 1st
April 2021. If
the regulations are approved, you must make all
reasonable efforts until 1st
April 2021 to hold client money in a client money account with a bank or
building society authorised by the Financial Conduct Authority but with deemed
compliance by 1st
April 2021. If the Amendment Regulations are
not approved 1st
April 2020 will stand. You can find the
Amended Regulations here http://www.legislation.gov.uk/ukdsi/2020/9780111192795.
Fifth Money Laundering Directive
As of 10th January 2020 the Fifth Money Laundering Directive came into force to try.. yet again… to tackle international corruption. This means high-value letting agency for commercial or residential property will now be brought into the scope of client due diligence if the rent is more than €10,000 (around £8,500) per month for at least one month of the tenancy and the tenancy is more than one month. This will include having to check both parties to the tenancy.
There will also be an obligation on those carrying out client due diligence to take reasonable steps to understand organisational structures. This includes understanding the ownership and control arrangements of trusts, companies, foundations or other such legal structures. Written records of how they did this should be kept and how they identified any beneficial owner and the person managing the structure. If there are any difficulties in carrying out these investigations, records must be maintained.
Where client due diligence is being conducted on an English or Scottish Company or LLP, the Persons Having Significant Control registers should be checked. If any discrepancies are found these must be reported., unless it is something minor such as a clerical error. The purpose is to see if names are missing on the register or the information is inaccurate. Guidance is available here to assist with this obligation. https://www.gov.uk/guidance/report-a-discrepancy-about-a-beneficial-owner-on-the-psc-register-by-an-obliged-entity
This will have a big impact where
properties are being sold or purchased through trusts or companies, in
particular those that have complicated set ups or are incorporated
abroad.
Businesses that fail to comply with the
Money Laundering Regulations, may face civil
penalties or criminal prosecution. This could result in unlimited fines and /or
a prison term of up to two years.
If you have not already, take action now and comply with the Money Laundering Regulations. Being helpful folk at Woodstock, to guide you on your way, here are some practical steps to take (but are by no means exhaustive):
- Appoint People
Your company must have a MLRO: Legally
you must have a Money Laundering Reporting Officer (known as the MLRO).
Technically their responsibility is just to receive reports from staff about
suspicious activity, and where appropriate pass them on to the National Crime
Agency (NCA).
- Ensure Your Business is Registered with HMRC
Estate agents are regulated by HM Revenue and
Customs in respect of their AML obligations. You must register the
business with HMRC, and pay a fee.
The obligation to register applies to
- all estate agency businesses, whether residential or commercial
- property or land auctioneers
- land agents
- relocation agents, property finders, etc
- in Scotland, a solicitors’ property centre
- other businesses that provide estate agency services;
this may include some asset management businesses, housing associations,
letting or property management agents that offer estate agency services to
landlord customers, and house builders with a sales office that offers
additional estate agency services beyond the sale of their own
construction units.
You don’t need to register if you are:
- a lettings agent only carrying out lettings work
- an auctioneer already registered with HMRC as a High Value Dealer
- a solicitor carrying on estate agency work as part of
that practice, not as a separate business.
- Do a Risk
Assessment
You must assess your risks: Your company
“must take appropriate steps to identify and assess the risks of money
laundering and terrorist financing to which its business is subject.”
You must keep a record: You must be ready to provide to HMRC on request:
- the risk assessment
- the information on which it was based
- an “up-to-date record in writing” of your risk
assessment steps.
- Draw Up (or Review) Your AML Policy
You must have a written policy. Your company must
- maintain a record in writing of its “policies, controls and procedures to mitigate and manage” money laundering risks
- regularly review and update these policies, controls and procedures
- maintain a record in writing of any changes made as a result of the review
- record what has been done to communicate the policies
controls and procedures to staff within your business.
In drawing up your policy consider some key
issues.
In particular, who should do checks when you
are engaged by companies, partnerships, LLPs, trusts, or by head agents, or
other entities? The rules about them are tricky. So we suggest you get the MLRO
to do the checks for those clients.
- Review Your Customer Due
Diligence Form
It is good practice to get staff to fill in a form when they carry out CDD. This helps explain their obligations and focuses their attention. Enhanced Due Diligence will be required when dealing with transactions from high risk third countries.
- Ensure You Are
Keeping Appropriate Records
You must keep records of both checks on clients
and client transactions for five years from the end of the client relationship,
up to a maximum of ten years. You must delete personal data when the retention
period has expired unless various exceptions apply.
You must also keep other records, including
your company’s risk assessment, its AML policy and changes to it, your steps to
communicate your policy to your staff, and training.
- Train Your Staff
You “must take appropriate measures to ensure that its relevant employees are—
(i) made aware of the law relating to money laundering and terrorist financing, and of relevant data protection requirements; and
(ii) regularly given training in how to
recognise and deal with transactions and other activities or situations which
may be related to money laundering or terrorist financing.”
You must maintain a record in writing of these
measures and in particular, of the training given.
HMRC guidance indicates that training should be repeated at least every two years, and most businesses repeat annually.
There is quite a lot to do but as I say, here at Woodstock Property Law we can assist with your procedures and policies. Please contact me ( Paula) at p.hebberd@woodstockpropertylaw.com.
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