The new directive on Anti-Money Laundering means that agents will have to carry out checks on landlords who earn over 10,000 euros a month – regardless as to whether this is from one property or a portfolio.
Nick Huntley, head of sales at AML specialist firm Credas, said: “While this will have a big impact on the high-value lettings market, it is important to remember that it is the accumulative amount that the landlord earns per month.
“To a large extent everybody thought lettings hasn’t been affected by the money laundering legislation. While the Fifth Directive will not bring all lettings agency into the regime it will focus on landlords who are earning over €10,000 per month, which equates to around £8,858.”
He added that the checks will also apply to tenants wishing to rent high-value property rentals.
If a rental property is over the €10,000 threshold both the landlord and the tenant will be subject to AML checks.
The Fifth Money Laundering Directive is due to be implemented in January.
The Guild’s compliance officer Paul Offley warns that regardless of whether the UK is still within the EU or in a transitional period, it will need to implement the new Directive, which enhances rather than fundamentally changes the requirements of the Fourth Directive.
Both Offley and Huntley warned: “For some agents, the Fifth Directive will involve a considerable amount of extra effort as they will not only have to consider the identity of the tenants but also get evidence of the source of the funds being used to pay the rental.
“Another consideration will be whether the tenant is a Politically Exposed Person (PEP) who may have obtained funds illicitly as a result of their position.”
Agents dealing with trusts or companies will have to carry out checks to understand who the ultimate owners are.
The agent will need to identify the individuals who have a controlling stake in the company or trust (25% ownership or more) and have open access to the information to any person with a legitimate interest.
While it is commonplace for higher value property in the UK to be owned via a trust or company to disguise the identity of the actual owners, under the Fifth Directive this will no longer be possible.
Trusts will be required to meet greater transparency obligations. In certain situations where an entity poses a substantial money laundering risk, the 25% threshold for identifying beneficial ownership may be reduced to 10%.
Huntley said: “Currently it is possible to check the owners of a company through Companies House. However my firm is currently developing a solution to allow the process of checking companies and the individuals to be as streamlined as possible, as well as the other checks that need to be done by agents to simplify the process.”
According to Offley, the key will be for agents to prepare themselves as much as they can before January 2020 to make the transition and compliance of the new Directive as easy as possible.
He said: “Many estate agencies have been fined for non-compliance since the inception of the Fourth Directive, so it is vital estate agents make it a priority to prepare for the upcoming changes in the new year.”
Comments (10)
There is no evidence or confirmation that this is true.
The 5th Money Laundering Directive will bring in AMl requirements on high value lets the only people suggesting this will be on the combined portfolio value are Credas.
I wouldn’t make sense as the risk of a tenant paying say £2000 pcm is the same whether the LL has one property or a dozen and there is no realistic way of an agent knowing how many properties an LL has or their rental incomes.
Smacks of a scaremongering story designed to sell a product.
Shouldn’t be that difficult to recognise who is who as letting agents have to give an annual return of landlords income to HMRC. Surprised? Shouldn’t be as its been going for a few years now and the agents receives one hefty penalty for not compiling.
I’m confused, don’t our brothers in lettings have to already complete AML DD on tenants, irrespective of value of rent?
One has to ask if this is because the authorities are so rubbish at their own jobs they need help from more intelligent people or is it just a scam to raise funds by fining people?
It’s just more EU meddling, the sooner we’re out the better. Can you imagine the reaction from LL’s if you have to start asking these sorts of questions, some LL’s will just start self managing to avoid all of this jobsworth nonsense.
How is it relevant to AML what a landlord earns in rent? We all know where the money is coming from! Are we to ask the landlord what he intends to spend it on??
I find that a very confusing article. Landlords who earn over 10,000E a month? What earn as in salary, dividends, or just in rent? Gross rent for 1 property or more? Net profit from rent? In their own name or across anything they’ve got an interest in? And does that mean we are going to have to ask all our clients for their tax return? I’m hoping this article is just badly written, or my brain’s not working yet this morning, because I know how angry our clients still get when we try and get proof they own the property so if we start asking what their income is we’re going to get some serious objections. Hoping for a more detailed article in the near future PIE please!
As this figure is in euros does that mean that it’s an EU directive and we might not have to do it after November?
It’s all a load of cr** – soon we need to do checks on people just registering.
Cumulative rents of 10k euros per month will be very hard to find if LL’s are split across several locations/offices. I’m not convinced it’s a total, I’m sure it’s per property.
Agents that have good AML processes should not have too much of an issue transferring the process to lettings.