Instances of money laundering and fraud are on the up, as explained by Adrian Gill, non-executive director of Reapit.
Two of the biggest challenges facing the property industry right now are fraud and money laundering. The scale of these activities is often spoken in hushed tones, with the industry being seemingly quite reluctant to acknowledge just how large the risk of money laundering and fraud has become in recent years.
Although many may be quite content to bury their heads in the sand, such activity is increasing, and the number of penalties being issued to agents - either for oversights or failing to uphold their compliance responsibilities - is also going up accordingly.
That’s why anti-money laundering (AML) compliance is, from my perspective, the single biggest issue keeping letting agents awake in 2023.
But how widely is AML non-compliance affecting the industry? I’ll provide a bit of insight and offer some advice for agents on how they can remain compliant with AML legislation.
The cost of doing nothing
Some agents may be asking themselves what the risk is of negligence (intentional or otherwise).
The answer first and foremost is laid clear in HMRC’s report in October last year that 68 estate agencies had been fined a total of £519,645 for not complying with AML requirements.
But that’s probably underselling the issue on a considerable scale – these are just the agencies that have been caught.
Before getting upset, not all agencies that neglect their AML requirements are doing so intentionally.
In fact, as Tim Barnett, chief executive of verification check provider Credas Technologies points out, the vast majority are due to oversights rather than intended money-laundering practices.
This is hardly surprising given the large volume of transactions that agents conduct day in day out.
But let’s not underestimate the issue. In 2022, almost half (39%) of organisations reported cyber-security breaches or attacks, according to the government’s Cyber Security Breaches Survey 2022, and among the businesses that identify breaches or attacks, over 31% experience these issues at least once a week.
Additional research found that estate and lettings agents still account for the largest number of AML fines issued by HMRC since the introduction of AML supervision, with the industry accounting for nearly half (45.4%) of fines issued – second and third place goes to accountancy service providers (41.1%) and money service businesses (4.6%) in the winner’s circle.
On top of that, the average AML fine handed to the sector has also increased by 63.7%, from £3,577 to £5,853, and modelling predicts this will increase further in 2023.
The devil’s in the due diligence
It’s fair to say that non-compliance with AML requirements is contributing towards more than a few headaches across the industry.
Part of the problem is that lots of agents are likely working on the assumption that they are doing AML checking correctly. Unfortunately, many agents are kidding themselves and they will get caught out eventually.
But it really doesn’t have to be this way. For starters, HMRC has provided specific guidance on what lettings agents have to do to stay on top of their AML obligations.
It’s all available on the government's site for anyone that wants to deep dive directly (and you really should if this AML stuff is keeping you up at night – because some of this stuff is mandated). But for a quick overview, here’s a review of the important stuff to remain compliant with AML legislation.
1. Register with HMRC
Anyone who engages in letting agency work, managing properties generating over 10,000 euros rent per month, must comply with the regulations. That means applying to register with HMRC. A simple first step that I’m sure every agency has managed, but if anyone’s missed it then they register their business online.
2. Appoint a Nominated Officer
Every business needs a Nominated Officer, no matter what size it is, and those agencies with multiple branches or with a high volume of customers will also need to appoint a Compliance Officer (otherwise known as a Money Laundering Reporting Officer, or MLRO).
3. Prepare a documented risk assessment
All businesses must have a documented risk assessment that identifies potential risk exposure. The risk assessment will act as a guide for developing the separate client risk assessments and guide your agency in considering what level of due diligence is required for your clients.
4. Have a documented AML policy
Make sure you have rock-solid policies, controls, and procedures in place to avoid any instances of money laundering. These measures should be easily accessible to all employees, and they should have been made aware of them.
5. Conduct Customer Due Diligence
Customer Due Diligence (CDD) is an essential part of assessing potential risk for your business before getting into bed together (professionally) with a client. It’s a process of checks to help identify your client and make sure they are who they say they are.
6. Report suspicious activity
Under the Proceeds of Crime Act, professional and regulated businesses like estate and lettings agencies are required to file a Suspicious Activity Report (SAR) as soon as they become aware of, or suspect, any instances of money laundering or terrorist financing activities.
7. Maintain accurate records for audit
HMRC has clear minimum requirements in regard to record keeping, this includes customer and transactional data, but also extends to policies documents, internal audits and training record. Keeping these up-to-date and accurate will ensure that you don’t get caught out.
8. Ensure staff are trained in your AML policies
Last but not least you must ensure that all staff members in your agency who deal with clients, money or are involved in compliance are trained up regularly in your AML policies. It’s easy to get stuff wrong when you don’t know what to do or what you’re looking for.
Moving in the right direction?
There’s a lot to cover when it comes to AML compliance and the guidance above is just scratching the surface, so it’s hardly shocking that oversights happen.
Frankly I’m not surprised if agents are losing sleep on AML, their days are busy enough as it is. But if anything, it only demonstrates why it’s so important that agents get their AML checking right.
A bright spot among all of this murky business is that there have been tangible steps to address compliance with the help of technology.
With tech suppliers like Thirdfort and full-service suppliers like Smart Compliance helping to take the pain and complexity away from AML compliance, the property industry has more backing in their corner to ensure that shortcuts aren’t taken when it comes to combatting fraud.
A little due diligence on the options available can go a long way towards a peaceful night’s sleep in 2023.
Originally published on Reapit.com
