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Letting agents escape money laundering regulation

by: Heather Greig-Smith
  • 16/03/2017
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Letting agents escape money laundering regulation
Letting agents will not be subject to money laundering regulations, the government has said.

Lettings agents will continue to be within the scope of the regulations where they carry out estate agency work but the application of the Money Laundering Regulations 2017 will not be extended to include lettings activity.

In its response to the consultation on the regulations, the Treasury said: “While it should be noted that the majority of respondents to the consultation supported the inclusion of letting agents within the regime, intelligence and evidence was not provided to justify the inclusion of lettings activity and the attendant costs of this proposal for those affected.”

It added: “The government will only “gold plate” where there is good evidence that a material money laundering/terrorist financing risk exists.”

Respondents to the consultation said lettings do not pose the same risk as sales transactions as they are not a quick or effective method of laundering money, given the time it would take to launder significant sums and because there is an extensive audit trail. In addition, lettings are not a ‘lasting store of value’, said government.

Despite this, several respondents suggested that where tenants and landlords are associates, money laundering may be possible, whereby a landlord funds a tenant’s rent and receives “clean” money back.

While lettings agents may be an attractive target for criminals seeking to disguise or hide the proceeds of crime, the government said lettings remain an “intelligence gap”. The government will update its policy paper, the National Risk Assessment, before the end of this year, and will seek further evidence on the risks in the estate agency sector, including on the risks associated with lettings activity.

A further concern is that private landlords would not be covered if they perform letting functions themselves instead of using an agent, even if lettings activity is brought under the scope of the regulations.

David Cox, chief executive of ARLA Propertymark (previously the Association of Residential Letting Agents), said the decision not to include letting agents was unfortunate.

“We’re disappointed the government has chosen not to include letting activity within the money laundering regulations 2017,” he said. “The risk with this is that money laundering activity will transfer from the sales sector due to the increased powers within the new regulation, into the lettings sector which remains unregulated.

“However, within the context of the recently increased legislative burden on letting agents, coupled with the shock announcement to ban letting agent fees in the Autumn Statement, we understand why the government has chosen not to impose these requirements at this critical juncture.”

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