All letting agents need to be members of a government-approved Client Money Protect (CMP) scheme from April next year, under amendments to the Tenant Fees Bill.
The schemes protect money that a tenant pays to a letting agent to pass onto their landlord, if for example, the agent goes out of business.
However, the (RLA) claimed the rules fail to provide enough protection for landlords.
This is because the level of insurance will not cover the full value of the rental money held by the letting agent, according to the trade body.
CMP schemes will be able to cap the amount they pay out, in the same way as the Financial Services Compensation Scheme, the RLA said.
Considerable risk to portfolio landlords
The association said there will be a considerable risk to landlords, particularly those with large portfolios, of not receiving all the money which they are owed.
It is advising that to help reduce the risk, landlords should spread their properties across a number of agents so that they reduce the need to go over whatever limit will be guaranteed with each one.
David Smith, Policy Director for the RLA said: “It is right that money provided to agents by tenants for landlords should be protected.
“It is disappointing that the government’s plans will not offer full protection and we urge ministers to think again or they will undermine confidence in the scheme.
“Otherwise we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk.”