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Finding relief from client money anxiety

Letting agents are between a rock and a hard place when it comes to opening a client account and getting Client Money Protection (CMP) coverage. CMP is a legal requirement in England, Wales and Scotland, but to get a CMP policy, an agency first needs a valid client account.

The problem is some banks are refusing to open client accounts for letting agents, citing the need for a client account per landlord, while others have been known to close client accounts when agents request a letter confirming they hold a valid client account.

This has left some letting agencies in a precarious position either operating without CMP or without a valid client account from an FCA-authorised bank.


Fortunately, there are solutions out there for letting agencies. In this article I'll explore why agencies need CMP coverage, why a valid client account for lettings is necessary and some of the solutions that can help them with both.

What is client money protection and who needs it?

Client Money Protection (CMP) is a legal requirement for letting agents in England, Scotland and Wales that hold client money, including insured deposits, that ultimately belong to a tenant or landlord.

It is a type of insurance that protects client funds if the letting agency goes out of business or if the funds are misappropriated. CMP provides reassurance to landlords and tenants that their funds are safe and secure no matter what happens to a business.

There are six approved CMP providers in the UK, and it is necessary for a letting agent to be covered by one of them. But to obtain CMP coverage, a letting agency must first have a valid client account from an FCA-regulated bank or building society.

Why is a client account necessary?

A client account is a key mechanism that allows letting agents to separate and shield their business and client funds from each other. It is the only approved bank account type for holding funds belonging to a landlord or tenant, including deposits, rent payments and fees agents collect on their behalf.

Unlike funds in a letting agent's business bank account, client funds are held in trust, so if the agency goes bankrupt that money is safe from any wind up proceedings and can be returned to the right landlords and tenants.

What difficulties do agents face in getting one?

Some banks will only open client accounts for regulated businesses, which has led to them turning away England’s as yet unregulated letting agents. (While there has been some movement towards regulating letting agents in England in the form of the Regulation of Property Agents (RoPA) report, this appears to be on the back-burner for the government.)

In seeking to show some level of regulated status, some letting agencies are risking fines by registering for anti-money laundering (AML) supervision when this is not required. While this may satisfy some banks, registering for AML supervision is only necessary if a lettings business has individual rents that are €10,000 or more and the rental length is a month or longer.

Additionally, in registering, they run a big risk of not having the correct policies or designated person in place within their agency. If they are inspected and found to be non-compliant, the agency could be hit with a large fine and removed from the AML register, which would in most cases cause the bank to close the agency’s client account and make it more difficult to open a new one in the future.

A better solution

While some banks are becoming increasingly selective about opening client accounts for letting agents, there are compliant alternatives to explore.

Reports in the media suggest some banks are more likely to close letting agency client accounts than others. If you’re looking for a safer haven, your local friendly competition may be willing to share who provides their client account, while organisations like RICS, The Guild of Property Professionals, SAL and Propertymark may also have recommendations.

Are e-money providers a solution? Currently, the UK government does not consider e-money providers to meet current CMP requirements. This means that agents who opt for e-money solutions may invalidate even a valid CMP policy, even after they have filled out all of the paperwork and been given a certificate. As a result, they could face fines or other penalties down the road.

Finally, there are some PropTech solutions that combine tried and tested technology with a client account endorsed and provided by an FCA-authorised bank. These solutions could be considered the best of both worlds, providing an automated client account that can help letting agents meet regulatory requirements.

They can bring other benefits too, including simplified and efficient client account administration, property management and landlord and tenant communications.

Options for agents

Letting agents can find themselves in a difficult situation when it comes to obtaining a client account and CMP coverage, but there are solutions out there if you know where to look and who to ask. It is always worth sounding out other local agents and asking professional bodies for recommendations.

Ultimately, it is up to each letting agency to decide which solution is best for their business. No matter whether a PropTech solution or traditional banking is used, the most important thing is to ensure that letting agencies remain compliant with the regulations and are providing a safe and secure environment for their client money.


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