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Who should pay for AML checks?

HMRC anti-money laundering compliance imposes a heavy financial and bureaucratic burden on agents. So who should pay for it, asks Christopher Keen, Director, CDDCheck.

Christopher Keen, Director, CDDCheck

Link to AML advertising feature

The property market has been under increased scrutiny in recent years as a potential hotbed for money laundering thanks to the large sums of money involved in each transaction. Only last year were estate agents increased from low to medium risk, with letting agents being brought under the legislation for the first time too.

Link to AML advertising feature

Christopher Keen

But despite the anti-money laundering (AML) regulations coming into force in 2017, agents are still failing to comply, with hefty fines being handed out to big names like Purplebricks and Countrywide in 2020 and half of agents selling prime property not even registered with HMRC.

It’s yet another, but just as important, hoop to jump through and one that takes time and costs money. Not only do agents need to carry out initial risk assessments and ensure controls and procedures are in pace to prevent money laundering, but they also need to pay various one off and annual fees to HMRC.

It’s yet another hoop to jump through and one that takes time and costs money.

On top of this, agents often pay for professional electronic search services like those provided by CDDCheck Online to save time and remove the risk of making errors during a laborious manual check. From as little as 50p per search, agents can instantly carry out Customer Due Diligence and Enhanced Customer Due Diligence checks in seconds and be provided with comprehensive data on a stakeholder including:

  • PEP (politically exposed person) status
  • Sanctions
  • Negative media
  • Law enforcement
  • Summary and identification
  • Political positions Related companies
  • Related persons
  • Excluded Directors

At what stage of the process estate and letting agents should conduct the checks is open to interpretation, but as we all know there is no such thing as a done deal in buying, selling and letting.

With as many as one in four property sales falling through, estate agents could be facing increasing AML check costs. For letting agents, it’s an even more difficult decision as the checks are likely to be part of the initial referencing process, which, if it fails, will likely mean the let won’t go ahead anyway.

So, this poses the question, should agents pass on the cost of AML checks to buyers, vendors and prospective tenants? It’s certainly something our European counterparts are already doing, but it also presents an ethical and moral dilemma.

AML checks need to be done for every party involved, by every party involved, which could mean an average of two buyers and two sellers per transaction. These checks are not just carried out by the estate agent, but also the solicitor and lender, for example.

Is it therefore fair to charge an individual three times for the same service?

A few years ago, law firms were criticised for passing on the cost to clients, with the Solicitors Regulation Authority (SRA) warning that such charges should be part of a firm’s overheads. While there is no clear guidance in the property sector yet, it would suggest passing the buck is not an option.

In the absence of any consideration by HRMC to the costs involved for agents, the only thing they can do is ensure they understand what is legally required of them, implement in-house best practices and minimise the risk of non-compliance by utilising services like those that CDDCheck Online provides.

Training is first and foremost key, and something a 2020 risk assessment report found was insufficient amongst registered agents. As well as our digital search solution, we also provide a variety of training options for agents on an in-house, virtual, group or branch-specific basis.

It’s something letting agents should plan ahead for too. Even though they are only required to comply with the regulations for high value rents equal to 10,000 euros per month, I suspect this will eventually reduce to cover a wider range, if not all rental properties over time.

With this in mind, letting agents should consider developing best practices now to reduce any future shock to business operations, and outgoings.

For more information about our training services or AML Compliance Solution, click to contact us.

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