Fraud in the UK property market is a seemingly intractable problem. In real estate, the high value of assets contributes to it being an attractive sector for crooks to target, while the conditions of the lettings market also make it a haven for those looking to launder ill-gotten gains.

In the UK, 35.2% of the population rents property, and the average monthly rent sum is £1,270. The sheer scale of money flowing through rental agreements makes it incredibly hard for letting agents and regulators to monitor the legitimacy of all payments being made. This provides a golden opportunity for crooks to launder illicit funds by disguising dirty money among the mass of legitimate rental payments.

Criminals laundering money through lettings have continued to run rampant.”

Lax regulatory oversight of rental agreements has also not helped the situation. Before January 2020, letting agents were not even subject to the UK’s Money Laundering Regulations (MLRs), meaning landlords, tenants, and other parties involved in rental agreements were not obliged to verify themselves. Even then, the MLRs only extended to letting agents handling rental agreements exceeding €10,000 per month. This meant that only a minority of lets met these criteria, and therefore most letting agents were not obliged to register with HMRC or carry out customer due diligence.

Unsurprisingly, given the scale of rental payment flows and limited regulatory oversight, criminals laundering money through lettings have continued to run rampant. However, this is all set to change from 14^th May with the introduction of new regulations aimed at swinging the balance back from the crooks to combat their illicit activity…

Time for change

Under the new rules, all letting agents will be required to carry out customer due diligence, regardless of the size of their rental agreements.

They will be obligated to report any suspicions of financial sanctions breaches, whether related to landlords, tenants, or other parties involved in their transactions, directly to the Office of Financial Sanctions Implementation (OFSI) as soon as practicable. They must include the nature of business conducted and the amount of any funds or economic resources held for that customer.

This requirement encompasses if the lettings agent only suspects a person is a Designated Person (DP) – individuals or organisations subject to sanctions – if they know for certain that they are, if the DP is known to have breached a prohibition or failed to comply with an obligation under sanctions regulations. The OFSI has a ‘Compliance Reporting Form’ which provides details on what information is required.

Obstacles on the way to compliance

While this all seems reasonable and understandable, given the scale of financial crime within the lettings industry, the process of identifying a DP or a breach is not so easy to understand or to implement. This is especially true for letting agents that have never had to comply with financial sanctions requirements before or have not been obligated to carry out customer due diligence checks until now.

As a result, confusion reigns. Propertymark has reported lingering confusion among its members on ensuring compliance and independent research conducted by SmartSearch discovered that 37% of letting agents are worried about complying with regulatory changes.

With the May deadline looming, it won’t be enough for letting agents to cite confusion as their reason for failing to comply. A change is needed in how letting agents approach compliance.

Ensure compliance today, and tomorrow

In order to comply with the new regulations, letting agents will need to ensure they have the ability to complete enhanced due diligence on their clients, have monitoring systems in place – both in terms of the status of their clients and their funds – and train staff to identify and report suspicious activity.

The most efficient, cost-effective and accurate way for letting agents to ensure compliance is through deploying a digital-first approach to compliance, deploying solutions that enable them to:

Automate screening for sanctions and Politically Exposed Persons (PEPs) – Perform instant global sanctions checks – including screening for PEPs and Relatives/Close Associates (RCAs) – receiving a clear pass or refer result in seconds.

Carry out continuous monitoring – Digital compliance solutions enable ongoing monitoring of clients against real-time sanctions lists, alerting agents immediately of any changes to the sanctions status of clients.

Get simple to understand results – Once a check has been run, results appear in a single report that is clear and easy to understand and can be downloaded in seconds.

Move with regulatory confidence – By automating compliance processes, the risk of human error is reduced, ensuring your business is meeting its obligations under new regulations. Most solutions also operate a central system that is constantly being improved and updated to ensure compliance with the latest regulations, meaning all users remain compliant even as regulations continue to evolve.

When digital solutions are leveraged, compliance is transformed from a burden to a growth tool for letting agents. In the absence of a digital-first approach, businesses will be forced to dedicate significant time and resources to complete thorough background checks and verify client identities.

By entrusting this to a digital compliance provider, firms can focus entirely on delivering exceptional customer service – reassured that their regulatory obligations are handled with thoroughness and reliability.