AML regulations for letting agents – what do you need to know?
Criminals launder “dirty” money and other assets to ensure that it has no obvious link to its illegal origins. The UK property sector has long been a target for such activity, with money laundering giving criminals an apparently legitimate source of funds. A 2020 UK AML National Risk Assessment report highlighted the high-risk nature of the lettings market.
Organised crime groups let out properties purchased with laundered money and use rental payments to launder funds. In many cases, landlords and tenants are part of the same criminal group. Ghost lettings are one way that rental payments are used to hide the proceeds of crime. Ghost letting includes where properties advertised ‘to let’ are not actually available, and where rent is paid regularly, but no-one physically occupies the property. “Cash” payments in the form of deposits are also particularly risky.
To help combat money laundering in the UK, in January 2020, letting agency businesses that manage properties which individually generate over €10,000 per month (or the equivalent) were included in the money laundering regulations (known as the Fifth Money Laundering Directive). The price threshold was set as it was believed that properties and land below this value were not as attractive to money launderers as those with a higher revenue generating potential.
By meeting their legal obligations under the requirements, letting agents can help to tackle the serious economic and social harm caused by money laundering, organised crime, and terrorism.
Registration with HMRC
From May 2020, letting agents across the UK were given 12 months to register with HMRC – which regulates the AML obligations of estate agencies in the UK. By now, all relevant letting agencies should have done so.
For the purpose of registration, HMRC describes a letting agency business as a “company or sole practitioner that does work after receiving instructions from a prospective landlord who wants to find another person to let land to” or a “tenant who wants to find land to rent.” This covers both residential and commercial property lettings.
Letting agents must register with HMRC before carrying out any related activity. During the registration process letting agency businesses should first select ‘estate agency businesses’ before choosing ‘letting agency business’ as a subsector. The registration process should be done annually (HMRC will send you a renewal notice). You must tell HMRC if you do not need your registration to continue.
There are also fees to be paid to HMRC for money laundering supervision, and if you fail to pay the correct fee, or fail to renew when you should, HMRC could cancel your registration and remove your business from its AML register. It is a criminal offence to trade as an estate agency/letting business without being registered. Firms that do not register, do not renew, or do not pay the correct fee, face having their registration terminated – leaving them unable to continue trading lawfully.
Letting agent AML compliance
To help letting agents meet their AML regulations, HMRC has published guidance for estate and letting agency businesses. The guidance covers several critical areas including:
- Risk assessment, policies, controls and procedures
- Customer due diligence
- Reporting suspicious activity
- Record keeping
- Staff awareness and training.
The guidance provided by HMRC should be read in full, but in short, letting agents must:
- Take robust steps to identify and assess risks of money laundering and terrorist financing
- Establish a written risk assessment and a written policy on how to manage the risk (and keep these up-to-date)
- Appoint a nominated Money Laundering Reporting Officer (MLRO)who is responsible for compliance.
- Ensure all employees are aware of the law and their obligations (via regular money laundering training).
Customer due diligence and compliance
Customer due diligence (CDD) plays a crucial role in letting agent compliance, and robust checks should be carried out on any new tenants and landlords. This includes taking all reasonable measures to verify the identity of beneficial owners. Letting agents should also know how and when to carry out enhanced due diligence on higher-risk clients (e.g., Politically Exposed Persons).
Crucially, where the requirements cannot be met, letting agents should not deal with the client and should consider making a suspicious activity report. In addition, agents should have adequate systems to record CDD activity.
If a letting business or agent fails to comply with the regulations, they could face civil penalties or criminal prosecution. This could result in unlimited fines and/or a prison term of up to two years.
With AML compliance a priority, letting businesses should conduct an Estate Agent AML review against HMRC’s policies to identify necessary actions. And, for firms committed to compliance, Legal Eye can help.
Providing sound knowledge and practical solutions, our team of experienced associates will help you understand the regulations and industry requirements to adapt your processes and procedures.
View our Estate Agent AML support services here.
Connect with us for the latest updates
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