Estate Agents are already pressed for time, so keeping up with their various compliance issues can prove challenging. Nevertheless, meeting their regulatory requirements is a must, not an option.
The penalties for non-compliance vary depending on the specific regulations, but, as an example, failing to register with a redress scheme can result in a fine of up to £5,000. In addition, estate agents who breach Anti-Money Laundering (AML) regulations face unlimited fines, imprisonment, or both, depending on the severity of the breach. And the level of fines being issued are growing. In Q1 2022-23, the average AML fine issued to estate agencies was £3,815 (6% higher than during the 2021/22 financial year). What’s more, the sector accounted for almost half of all AML fines issued (45.4%) by HMRC.
The good news is that agents can take some simple steps to reduce the risk.
Understand the requirements
Understanding the requirements placed on Estate Agents is the first step to compliance. But it can be a challenging one. Some things to be aware of include:
- The AML Regulations, which require agents to conduct customer due diligence
- The need to belong to a government-approved redress scheme
- Agents are subject to consumer protection regulations
- Estate agents in the UK must comply with advertising standards
- Agents must ensure the properties they sell or let comply with health and safety regulations
- Agents must adhere to the compliance requirements of the Estate Agency Act 1979
- Agents across the UK must register with HMRC. It has published some helpful guidance for estate agency businesses to help them meet the requirements placed on them.
This is not an exhaustive list, and estate agents may also be subject to other compliance requirements depending on their specific circumstances. Likewise, not all agents are required to comply with all regulations.
When identifying, assessing, understanding, and mitigating money laundering threats, agents should ensure they document all their steps. Estate agents can better explain their decision-making and demonstrate their commitment to compliance by keeping thorough records.
Invest in compliance
Investing in compliance is essential for any estate agency committed to operating within the regulatory framework. This involves things like providing regular training to appointed Money Laundering Reporting Officers (MLROs), Deputy MLROs, and wider staff so that everyone understands what is involved and is kept up to date.
Crucially, as well as helping firms avoid penalties and preventing reputational damage, prioritising compliance and fostering a culture of integrity will also benefit operational efficiency as processes are streamlined and errors, delays, and inconsistencies are reduced.
Know how to spot red flags
Customer due diligence (CDD) is essential to estate agent compliance, with robust checks required to ensure clients are who they say they are. As part of this process, estate agents must be able to identify any potential red flags, for example:
- Transactions where the customer is unable to provide basic information such as ID or inadequate verification of beneficial ownership
- Transactions where the source of funds (SoF) is unclear (e.g., if there are any questions about where the money came from, how it was earned or acquired, or how it was transferred to the customer).
- Transactions involving individuals or entities from high-risk countries
- Transactions that involve complex structures, such as multiple parties or intermediaries
- Transactions with politically exposed persons (PEPs)
- Transactions that involve unusual or high-value properties. For example, those with no clear market value or properties that have recently been purchased or sold multiple times.
- Any other situation that presents a higher risk of money laundering or terrorist financing.
Agents must carry out enhanced due diligence (EDD) in such cases. Where the requirements cannot be met, agents should not deal with the client and should consider making a suspicious activity report.
Keep an eye on future changes
Over the last few years, there have been some significant changes to the compliance requirements placed on UK estate agents. For example, in April 2022, to help tackle the UK’s dirty money problem, the UK finally passed the Economic Crime (Transparency and Enforcement) Act 2022. This requires more stringent customer due diligence and more comprehensive record-keeping.
As we move through 2023, agents must be aware of future changes intended to strengthen the AML regime further and take steps to ensure compliance.
Invest in third-party support to help manage AML compliance
To meet their AML requirements, estate agents must undertake risk assessments, keep up-to-date records, carry out robust checks, and ensure that their AML policies (as well as any supporting policies), documents, procedures and training are all relevant, up-to-date, and compliant.
By investing in third-party support when managing AML compliance, agents can be better equipped to handle risk while reducing their administrative burden. And importantly, outsourced AML compliance is cost-effective, particularly for smaller firms that may not have the resources to hire a dedicated compliance team.
Providing sound knowledge, practical solutions, and AML training, we help our estate agent clients understand the regulations and industry requirements and adapt their processes and procedures accordingly.