Why landlords and letting agents must conduct anti-money laundering (AML) checks

Banks are dictating AML responsibilities on letting agents and landlords

The way that letting agents do business with their landlord clients is constantly evolving. Change is often made because of new systems and technology – meaning that landlords benefit from streamlined services and cost savings. Another change is dictated by new and updated laws – often resulting in extra burdens on the letting agent and landlord. Another change happens as a by-product of change elsewhere.

If you are a buy-to-let landlord who uses a letting agent, you’re now likely to need to fill in anti-money laundering forms. Not because the law says letting agents must check for money laundering, but because the law says that banks must check their clients – specifically to defend against politically exposed persons (PEPs).

Why letting agents will be PEP checked

Banks must adhere to the Financial Conduct Authority’s rules governing client accounts, and this includes ensuring that their customers are anti-money laundering checked. The Money Laundering Regulations don’t include the need for letting agents to carry out customer due diligence, but they do include banks and other financial institutions. Banks are now arguing that this means letting agents must conduct due diligence checks on their clients by extension.

The first bank to insist on this was Handelsbanken, whom in 2017 told its letting agent clients that they must carry out anti-money laundering (AML) checks on all their landlord clients. Now other banks are following suit. The sanction against letting agents that don’t AML check their clients is the withdrawal of banking facilities: effectively closing down the letting agent.

What letting agents must do now

While banks may only check around 1% of a letting agent’s cases each quarter, the letting agents do not know which these cases will be. Therefore, letting agents must carry out checks on all their clients – landlords and tenants. This is going to add an extra layer of time and cost to letting agents’ operations, as:

  • All occupants must be vetted
  • All landlords must be vetted

What does this mean for landlords?

As a landlord, if you use a letting agent the responsibility for AML checks on your tenants will be transferred to the letting agent. If you don’t, it is likely that you will need to carry out AML checks on all occupants in all your buy-to-let properties because you have set up a business relationship with a customer.

How do you do an AML check?

Here’s the nitty-gritty of AML checks. The information needed to be collected includes the following customers’ (landlords and all occupants) details:

  • Names
  • A photograph on an official document to confirm the identity
  • Residential address
  • Date of birth
  • Utility bills
  • Passport
  • Bank statements
  • Credit checks

It’s also necessary to update this information to account for changing circumstances, which may require further due diligence tests.

Enhanced due diligence for PEPs

Of special concern are PEPs, who are typically:

  • A non-UK or non-domestic member of parliament
  • Head of state or government
  • Government minister
  • Family members and known close associates of any of the above

In these cases, the letting agent will need to carry out enhanced due diligence to ensure that money laundering is not taking place by establishing where the person’s wealth and funds come from.

What if AML checks aren’t conducted?

If the letting agent doesn’t carry out due diligence and AML checks, HMRC can charge up to £1,500 for the breach. But this isn’t the only potential penalty. If the regulations are not complied with, HMRC can impose a penalty that is “proportionate to the failure” and which “dissuades non-compliance”. The penalty could, technically, be unlimited and include custodial sentences of up to five years.

Who is responsible for AML checks?

The person who sets up the business relationship is responsible for conducting AML checks. Therefore, a DIY landlord will be responsible for carrying out AML checks on their tenants. If they don’t, their bank accounts could be closed, their business ceases, and they could be fined and/or imprisoned.

Where a landlord uses a letting agent, the responsibility (and potential penalties) falls on the letting agent, who will need to carry out AML checks on the landlord and their tenants.

AML checks are another peril of being a DIY landlord, and another cost for letting agents to cover.

The risks of being a DIY landlord don’t get any less. For effortless property management, contact Ezytrac today on +44 0 1522 503 717.

Live with passion,

Brett Alegre-Wood

By | 2018-11-26T11:24:23+00:00 November 26th, 2018|Landlord lessons, Property Management|0 Comments

About the Author:

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Ezytrac. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.