For some estate agents, compliance can seem overwhelming and complicated. It can be difficult to know where to start and how to ensure your business is adhering to the ever-changing requirements of HMRC legislation.
Below you’ll find the two immediate actions you need to take for your business, followed by the 6 steps you should cover for every transaction:
Get your business registered with HMRC
1. Most estate agents will need to register with HMRC.
Find out if you need to and submit an application.
You need to pay to register with HMRC, a list of the fees can be found here:
2. As part of registering a series of checks are carried out. These apply to responsible people running your business to make sure you meet the requirements of the Money Laundering Regulations.
Get business policies and procedures in place
Senior managers are responsible for making sure that the business has carried out a risk assessment for its business and has policies, controls and procedures to help reduce the risk that criminals may exploit the business for financial crime.
1. Your business must appoint a Nominated officer, no matter what size it is.
Having an appointed Nominated Officer and all staff knowing who this individual is, is a basic requirement of HMRC legislation, but the research suggests many aren’t even getting the basics right.
2. Prepare, maintain and approve a written policy statement, controls and procedures to show how the business will manage the risks of money laundering and terrorist financing identified in risk assessments.
Manual processes could be particularly risky when we consider that instinct and opinion plays such a large part in many agents’ approach to anti-money laundering, meaning things can be missed. This is where technology can be helpful, to standardise processes and put governance in place.
3. Ensure all staff have had adequate training on the policy and procedures
Your obligations for every transaction
Basic anti-money laundering requirements
Step 1: Confirm ownership of the Property
Step 2: Conduct Risk Assessments on ALL Vendors and buyers
Step 3: Carry out Customer Due Diligence (CDD)
Step 4: Reporting High Risk and Suspicious Activity
Step 5: Keep Records
Step 6: Monitor the Transaction
1: Confirm ownership of the property
HMRC expect agents to have clear processes place in to verify the legal owner(s) of any properties that they are selling and obtaining a copy of the Title Register for the property is the route HMRC outline in their guidance. The cost is £3 for obtaining a copy of a title register and this it is money well spent to ensure you meet this requirement.
2: Conduct Risk Assessments on all vendors and buyers
HMRC guidance requires agents to complete risk assessments, and there are penalties that can be imposed where they are not. Assessments are quite simple to do and doing them can make your compliance process easier and quicker. The customer due diligence steps required for a low-risk customer are much less onerous than those for a high-risk customer and most of your customers will be low risk.
Some high-risk indicators to consider are:
• Clients that reside outside of the UK (especially if in a country considered high risk)
• The property is a buy to let
• The property is valued over £1m
• You have not met the client in person
• The client has indicated that they are politically exposed
• There is something unusual or suspicious about the transaction
3: Carry out Customer Due Diligence (CDD)
You must carry out customer due diligence on your customer and the counterparty to the transaction. The level of due diligence will depend on your risk assessment of each person in line with your overall risk assessment; for example, a High risk with require Enhanced Due Diligence.
You must verify that both parties to the property sale are who they say they are. This is often referred to as ’know your customer’ or exercising customer due diligence.
a. Establish whether a customer is politically exposed
Anyone who is a Politically Exposed Person (PEP) is to be assessed as high-risk according to Money Laundering Regulations. The chances of a customer being a PEP are relatively low, but all regulated businesses must have a procedure in place to check for this.
b. Establish whether a customer is on any political or financial sanction lists.
It’s important to identity individuals that are subject to sanctions to ensure you do not engage in financial transactions with them. Sanctions against individuals are imposed due to an involvement in serious financial crime, organised crime, or terrorist activity.
4: Reporting High Risk and Suspicious Activity
If you identify a client or transactions as High Risk or you have suspicions, you must promptly discuss this with your Nominated Reporting Officer (NRO) and obtain consent from them to continue with the transaction.
You must take steps not to alert the client that you are suspicious or making a report or discuss with anyone other than the NRO in order to avoid tipping off. Tipping off is an offence and can result in fines and/or imprisonment.
The NRO will review and advise you how to proceed. They may make a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) where they feel it is required
5: Keep records
You need to keep records of your transactions, including your risk assessment and customer due diligence/checks for reference for a duration of 5 years after the transaction has taken place.
6: Monitor the transaction
You must continue to monitor a transaction and the source of any funds, to make sure they are consistent with what you know about the seller or buyer and their risk assessment. You need to keep the information you collect up to date, and it should be checked periodically and reviewed where you become aware of a change, for example, a change to a legal entity, buyer or purchase method.
These are key stages in the compliance process but will not necessarily reflect everything you need to do within HMRC guidance, and you should ensure you fully understand your obligations.