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Money laundering regulations

Nobody expects the Spanish Inquisition when they buy or sell a house, so professional management of these new strict money laundering regulations is critical, says Ben Robinson at Landmark.

Ben Robinson, Director of Agency Service, Landmark Estate Agency Services

Money laundering imageImplications to changes to the Money Laundering Regulations 2007 enacted in June 2017 are now becoming apparent as estate agents grapple with their new responsibilities.

The 4th Money Laundering Directive was passed into law on 26th June 2017 with wide-reaching implications across a range of sectors including law, gambling and property. For estate agents, subject to the Money Laundering regulations since their introduction, the changes bring challenging new requirements.

WHY ESTATE AGENCY?

In 2015, despite c.1m property transactions, estate agents submitted just 355 Suspicious Activity Reports (SARS) to the National Crime Agency, just 0.0003% of transactions. With figures as high as £100bn p/a quoted as being laundered through the UK every year the property sector is under scrutiny.

Ben Robinson, Landmark, image

Ben Robinson

The Government has clear objectives; to prevent the use of illegally obtained funds or terrorist financing from being legitimised through the sale and purchase of property.

HMRC guidance shows why estate agents have been targeted specifically with the legislation. Estate agency businesses do not commonly handle the funds used to buy a property. However, they are a key facilitator in a property sale and come into contact with both parties to the transaction at an early stage and so are in an ideal position to identify suspicious activity.

THE CHANGES
  • Two key changes, now in effect: Buyers, as well as sellers, are now considered as customers and Customer Due Diligence (and Enhanced Due Diligence where applicable) must be applied at the point the business relationship begins.
  • Domestic Politically Exposed Persons (PEPs) and Foreign PEPs, are to be identified and Enhanced Due Diligence applied.
  • The changes challenge the sector to understand and apply a proportionate response to risk. Agents must demonstrate how they have come about any decision to engage in a business relationship.

This is also known as KYC or Know Your Customer – involving understanding more about the individual and the transaction.

HMRC acknowledges that in most cases this will be self-evident and typically KYC will involve

  • verifying the identity of the customer(s)
  • understanding their reasons for sale/ purchase
  • and verifying their right to sell the property,

…to enable an evidence-based risk assessment. Critically no illegal funds need to have passed through the business for the agent to be culpable. HMRC can levy unlimited fines on a sliding scale starting at £2,500 linked to an agent’s gross profit.

THE CHALLENGE

It is easy to get hung up on getting hold of photo ID, or utility bills etc., but agents must understand what the documentation is telling them about any perceived risk. The objective is to identify any perceived risk from a Money Laundering perspective to the business.

Client verification forms one part of the process; it is usually the transaction that is more likely a risk. Agents in customer facing roles – managers, valuers, negotiators, sales progressors – need to understand what to look out for.

The Money Laundering regulations are extremely unusual in that they legislate for staff training. In its guidance, HMRC outlines indicative transactional behaviours of high risk clients:

  • Use of private banking
  • Preference for anonymity
  • A person is not physically present
  • Payment from third parties with no obvious association
  • Involves nominee directors, nominee shareholders or shadow directors, or a company formation is in a third country

The list is not exhaustive, nor is it necessarily evidence of illegal activity, but rather indicative behaviours of individuals who may be involved in money laundering and require further investigation.

THE CLIENT EXPERIENCE

Consumers demand immediacy; next day delivery, on demand television – even in decisions as big as buying and selling property, the time it takes for the average consumer to make a decision on a house purchase is less than they take to choose a new car. If the requirements placed on agents are onerous, implementation need not be. There is a risk that on-boarding new clients turns into the Spanish Inquisition!

Electronic checks expedite client verification process in under a minute, usually negating the need for paper documentation. They also present the potential to improve customer experience with no need to collect the traditional array of documentation streamlining the process. So its not all bad news.

To find out more about how electronic checks could help your business contact Landmark: 01524 220013 Landmark Estate Agency Services is an umbrella group covering the market-leading services: Metropix; SmartVal, GoView digital OS mapping and ETSOS Estate Agency products and Mouseprice.

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