All letting agents in England are required to belong to a client money protection scheme when they hold client monies. This scheme provides insurance to landlords and tenants in the event the agent steals money from their clients.
Below guide provides a primer for agents on what they need to do to comply with these regulations, what are the potential penalties for not complying, and which schemes are available.
What is client money protection
The client money protection regulations require anyone engaging in property work to pay to belong to one of the recognised and approved client money protection schemes where they are holding client money.
This is to insure any money paid by the landlord or tenant, so that if it is stolen by the agent, the landlord is covered.
What is client money
Client money is any money received from a client in the course of business that is held for another person. Rent for example is client money as the money is received in the course of business and held on behalf of the landlord. Similarly, a holding deposit or float funds would also count as client money.
If a security deposit is held in the agent’s account in accordance with an insurance based deposit scheme, this money is not classed as client money.
What are the schemes for client money protection
- Client Money Protect
- Money Shield
- Safeagent (previously this was NALS)
- UKALA Client Money Protection
- RICS Client Money Protection
What do the schemes require for membership
Each scheme has its own rules and membership and agents will have to comply with the rules of the scheme they choose
Agents may have to;
- Provide three months of bank statements for your client accounts
- Ensure that no manager or director of the company has a criminal conviction for a financial crime such as fraud
- Register each individual franchise with a separate membership even if all franchises use the same account
The agency has to ensure that they familiarise themselves thoroughly with their chosen scheme’s rules for membership and comply with all the requirements of their schemes.
The scheme rules will always require the agents to;
- Have client money handling procedures in place and appropriate to the business
- Retain sufficient professional indemnity insurance at all times
- Hold the client money in a separate client money account that is regulated by the Financial Conduct Authority.
- It is a legal requirement that the agents’ scheme membership results in a level of compensation that matches the maximum amount of client money held. Failure to do so will mean that the agent is in breach of the regulations and may face penalties.
- Clients must be informed of the scheme that the agent belongs to; The regulations are very clear on this point and it operates in the same way as the redress scheme requirements.
- Agents must clearly display on their website a copy of the certificate showing which scheme which they belong to.
- Agents must display a copy of their certificate of membership in each of their offices in a prominent location that is easily visible to clients i.e. not in the back office but in the window at the front.
- If a client requests a copy of the certificate, agent must provide this free of charge.
These are known as the transparency requirements.
- If an agent swaps schemes, they must inform their clients.
- Each scheme must display details of the members in a searchable database on their websites. Alternatively clients may ring the schemes direct.
- Any local authority may enforce against an agent for breaching the requirements of the regulations.
What are the penalties that can be issued for non-compliance
There are two separate penalties that can be issued:
- Failure to comply with the transparency requirements
- Failure to belong to a scheme
- If an agent fails to display their certificate properly or notify their clients when swapping schemes, they can be issued a penalty of up to £5000.
- If an agent fails to belong to a scheme they can be issued with a penalty of up to £30,000.
- An agent can only be issued one penalty for each breach at a time but can be penalised again if they fail to address the issues after the notice period expires.