03 Feb 2020

Money Laundering Terrorist Financing (Amendment) Regulations 2019- A Guide for Letting Agents

The regulations expand the scope of what will be considered a “regulated” business within the property management sector for the purpose of anti-money laundering (AML).  Unlike the previous AML rules, they will apply to letting agents, but only in relation to high value transactions.

HMRC is the supervisory body and letting agents covered by the regulations have 12 months from 10th January 2020 to register with them. However, due to internal upgrading of HMRC’s systems, it will not be possible for letting agents to register until May 2020. Notwithstanding, any agents who require to register still have to comply with the regulations from 10th January 2020.

High Value Transactions

A high value transaction is one where the monthly rent is 10, 000 euros (or equivalent to, currently £8,407.55) or more and a term of more than a month (so short term lets are not covered). This is a “per property transaction” limit and not cumulative across a portfolio. In light of that, most letting agents within Scotland will not have to register, unless they are also estate agents.

Letting agents required to register must do the following from 10th January 2020, for any tenancy where the monthly rent is at least 10,000 Euros or more:

  1. Customer Due Diligence (CDD).

CDD must be carried out on both parties to the transaction and is the following:

  • Risk assess both parties to the transaction
  • Check and verify their ID. If either party is a company or other “legal entity, check their registration. For companies and LLPs this can be done on Companies House. Get details of any beneficial owners. If you notice any discrepancies, then these must be reported to Companies House.
  • Enquiries into the source of funds are only required where necessary.

All the above must be done before establishing a business relationship with the Landlord and in relation to tenants or guarantors, at the point their offer is accepted. Records of CDD checks must be kept for up to 5 years.

  1. Policies and Procedures 
  • You must risk assess your own business to identify any risks of money laundering and terrorist financing.
  • Produce policies, and risk management systems to prevent money laundering. These must be in writing and kept updated. There must be specific policies relating to politically exposed persons as these individuals are deemed more vulnerable to corruption due to their position.
  • Ensure staff are aware of the law and provide regular training to staff to enable recognise the kinds of transactions that may lead to money laundering/terrorist financing.
  • Nominate a director or senior manager responsible for money laundering and to receive information about staff concerns.
  • Notify HMRC of the details of the nominated officer/money laundering reporting officer and notify HMRC of any changes to these individuals within 30 days.
  1. Enhanced Due Diligence

If there is a high-risk situation (see below for examples) or after CDD is carried out, any concerns arise out of the CDD that could lead to a high-risk situation, enhanced due diligence (EDD) must be carried out. EDD comprising of the following:

  • Information on the customer and customer’s beneficial owner
  • The intended nature of the business relationship
  • The source of funds and wealth of the customer and the customer’s beneficial owner.
  • Reasons for the transaction
  • Conduct enhanced monitoring of the business relationship by increasing the number of controls applied and selecting patterns of transactions that need further examination
  • If there are any difficulties or concerns relating to beneficial owners, office, and managers after having carried out enhanced due diligence (EDD), additional to the CDD, then approval from senior management must besought before carrying a on business relationship.
  • If any party to the transaction is resident or established in a high risk third country, then senior management approval must be sought before entering into a business relationship.

When Enhanced Due Diligence must be carried out.

Further guidance on the requirements relating to politically exposed persons and EDD will be available from HMRC shortly. Circumstances in which enhanced due diligence will always be required in terms of the regulations are as follows:

  • Any transaction where either of the parties are established or resident in a high risk third country
  • Any transactions that are unusually complex or large
  • There is an unusual pattern of transactions
  • The transactions have no obvious economic or legal purpose

If you require any further information or advice, please contact Rory Cowan