One of the reasons I am told that letting agents continue to run expensive accounting functions in-house is an understandable concern over trust and losing monies.
Only last year we saw the collapse of a well-known outsourced property management business and the true “fall-out” is yet to be fully revealed although it seems likely that there will be significant shortfalls in the accounts and, almost certainly, many people – landlords, tenants and agents, suffering financial loss.
The requirement for agents to carry client money protection (CMP) insurance has been mandatory since April 2019.
And it remains to be seen whether this “backstop” protection will fully cover any shortfalls where an agent has outsourced their client accounting to a third party who fails to operate with the financial probity that they should.
Letting agents and property managers should look to directly retain visibility and control over client and customer monies but in doing so, may not be looking any further than running expensive, labour-intensive accounting functions that remain prone to human error, place pressures on service delivery and are often not integrated with other systems or third parties such as the banks and deposit schemes.
Any mention of banks also raises the growing issue of undesignated client accounts. Most letting agents and property managers operate a single client account into which all client money is deposited and distributed.
Keeping an accurate and up-to-date record of every client’s individual funds when managing a huge portfolio is a major issue and to compound this, many banks are now threatening to close such accounts unless agents and property managers set up individual accounts for each client.
Keep your house in order
Unsurprisingly, I believe it involves using great technology and a fully compliant specialist provider to support and underpin your existing operations.
I would look for an automated and fully compliant, end-to-end rent management and other payments platform where payments can be facilitated by standing order, direct debit or merchant services so as to best meet the needs of your clients, customers and your business. Crucially the ultimate “sign offs” on payments etc need to rest with the agent or property manager.
A provider should facilitate seamless visibility in the collection and disbursement of funds including rents and deposits and crucially, be fully AML compliant with funds traced through from request to pay out.
I would also look for Designated Landlord Account Management (DLAM). But crucially, look for the appropriate accreditations, namely FCA (Financial Conduct Authority) registration and PSD2 compliance, the main piece of legislation covering payment services across the EU and the UK benchmark for client accounting services.
Businesses must demonstrate to the FCA that they meet a range of requirements and these are then supervised to make sure they continue to meet the standards and rules after they are authorised.
The FCA works alongside money regulator the Prudential Regulation Authority (PRA) and has various powers to enforce PSD2 in the UK and to impose penalties and censures for breaches of its rules, and to instigate criminal prosecution.
Working with a provider who is FCA registered and who complies with the PSD2 directive will protect your business.
Garrett Foxon is founder of LettsPay