In September 2016 the Government launched a consultation entitled ‘Transposition of the Fourth Money Laundering Directive’. It outlined how the Government intended to implement the EU’s 4th Money Laundering Directive and the Fund Transfer Regulation which accompanies it.
The overall objective of the transposition is to ensure that the UK’s anti-money laundering and counter terrorist financing regime is kept up to date, effective and proportionate. This should help to safeguard the UK’s financial system and ensure that it is an increasingly tough environment for both money laundering and terrorist financing.
On 15 March 2017, the Government published its response to the September consultation together with the draft Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLR 2017”). The consultation on the MLR 2017 is open until 12 April 2017 and they are expected to come into force by 26 June 2017.
In their current form, the MLR 2017 impose a number of new and updated requirements on certain industries, including estate agents.
Following publication of the Government’s response, the following points, which will be of significance to estate agents, have now been clarified:-
1. Only letting agents who carry out estate agency activity and/or deal in leases of capital value will fall within the scope of the money laundering regulations and the scope will not be extended to include all other lettings activity. This is despite calls, including from many within the industry, that the MLR 2017 should apply to all lettings agents.
One of the Government’s arguments for not including lettings activity within the regulated sector suggested that “lettings are not a lasting store of value and so are an ineffective method of laundering money”. As the proposal to regulate lettings activity would not include private landlords who let out properties without the use of a letting agent, the Government also argued that this would “leave a significant gap in coverage, as there would be no oversight of an agentless business relationship and no requirement to have policies or procedures in place to mitigate the risk of money laundering and terrorist financing in that relationship.”
2. Following some uncertainty, the Government has now clarified that estate agents will be required to carry out customer due diligence (“CDD”) on buyers, as well as the seller for whom they are acting.
The consultation states that most respondents welcomed the change, because estate agents are “well-placed to act as gatekeepers” for both parties as they have a relationship with both sides of the transaction, and they encounter the buyer at an early stage.
Other respondents to the consultation noted that agents are already obliged to report suspicion, and questioned whether CDD could effectively be carried out by an agent if there is no contractual relationship. They argue that, as the buyer has no contract with the estate agent, the agent has limited control over the buyer to compel them to provide the required CDD documents. Many agents do, however, already carry out checks on buyers as part of their standard procedures.
What is less clear, following the Government’s clarification on this issue, is the point at which an agent is required to carry out CDD on a buyer, for example is it when they initially register interest, when an offer is made or when an offer is accepted? Further clarification on this point will be required and will hopefully be provided by the time the MLR 2017 come into force in June 2017.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Kenny Friday