Letting agents are struggling to open new bank accounts and even large established letting agents with a long history of trading are reporting that banks are refusing to set up client accounts for them.
Worryingly, some agents have been saying they have been served notice that their account will close.
This problem, which has its roots in Anti-Money Laundering (AML) legislation, was reported on last year, but dropped off the radar over Christmas. Then Covid-19 took over the news agenda just as AML was tightened in January 2020.
Yet the problems letting agents have been experiencing with opening client accounts have not gone away. For start-ups hoping to enter the market, this is a barrier to entry. For established estate agents, it is causing a major headache.
The issue is not limited to new market entrants. At The Letting Partnership, we have been approached by numerous agencies this year asking for our help after major banks said they were going to close their client accounts despite a long trading history.
One client was told that to open a client account they would need to visit a branch in person during the pandemic and that it would take a month to process.
Another new market entrant reported that during the pandemic a major high street bank was not taking on new business at all, while some of our clients have been encountering delays of seven months to set up an account.
Letting agents have even experienced banks telling them they need a separate account for every landlord, which is not practical. In one instance, this meant 250 different client accounts.
Letting agents who are looking to enter the market are in a Catch-22. To secure a client account, they often have to jump through hoops which require a client account.
For example, letting agents cannot joint Propertymark without a client account, but the bank will not open a client account for them unless they are a Propertymark member.
What is prompting banks to crack down on agents?
The reason agents are struggling to open and retain client accounts with banks is the introduction of AML regulations.
From the banks’ perspective, the issue is compounded by the fact that, unlike bankers and solicitors, letting agents are not regulated by the Financial Conduct Authority (FCA). The industry has also historically come under fire for lacking independent regulation and indeed self-regulation.
AML is not a legal requirement for most stand-alone letting businesses but without it, banks are exposed to risk.
Conversely, agents operating in both lettings and sales are legally obliged to register with HMRC’s AML scheme, but the fact is that banks value FCA regulation more highly due to it’s all-encompassing nature.
As the letting industry is small compared to other revenue streams, it’s likely banks are deciding they are not prepared to take the risk.
Agents have many hurdles to overcome to gain access to client accounts. If they are new to market or they don’t have a long trading history, banks will have less trust in them.
Other factors that will make them a less attractive prospect are a lack of adequate Professional Indemnity Insurance, Client Money Protection and membership of an industry trade body.
Mitigate the risk
Letting agents should prepare for a day when their bank tells them they have to close a client account. They must ensure they have AML membership, whether it is a legal requirement or not.
They should also acquire adequate Professional Indemnity Insurance, Client Money Protection and membership of an industry trade body.
Agents must put a plan in place and prepare for the worst. This issue will not go away and is likely to escalate over the coming months.
*Chris Mason is Operations Manager at The Letting Partnership