Anti Money Laundering update: We’re now on the fourth attempt at guidance

The important point to note with the new Anti Money Laundering regime is that it is not enough simply to check both sellers and buyers: the obligation on agents is to risk-assess each case.

Unfortunately, agents have not been helped by changes in government guidance which were rushed through and very little different from earlier drafts.

We had two consultation versions of the guidance in May and then a published version on June 26 to correspond with the change in legislation.

That third version didn’t appear to have changed much, if at all from the consultation versions, which was a surprise given the multitude of problems with the document and the number of comments that were sent in.

This fourth version published last week is better, but still has obvious problems, not least because they still haven’t got the clause numbering correct.

In general terms there are quite a few additional management obligations on agency businesses, but at a day to day level the new changes mean agents and staff need to focus on client risk assessments before conducting customer due diligence (CDD) and focus on conducting CDD on buyers.

HMRC do appear to be softening in their approach to conducting customer due diligence (CDD) on buyers. They have now at least accepted that the obligation only exists where a buyer exchanges on a property, but they do expect agents to conduct CDD at the point the Memorandum of Sale is issued.

Still on the issue of buyers, there might be some more good news, because there is a change in the guidance which now states that agents must terminate a business relationship with a buyer, if the buyer “indicates they are not prepared to prove who they are”.

We all know that not many buyers will indicate they are not prepared to prove who they are, but there will be some who will not be rushing to your door to provide the documents. Potentially a softer approach!

However, they still don’t grasp the problem of terminating a business relationship with the buyer, if the buyer refuses to provide ID. Agents have no business relationship with a buyer and so it is not possible to terminate it!

I have asked more than once for them to clarify how an agent would prove they had terminated their relationship, but no response so far.

Unfortunately, it looks like they haven’t got their heads around the legality of agents running a sealed bid process either; they require agents to conduct CDD on all sealed bidders, when at best only one will end up as buyer and in many cases none of the bidders end up buying!

Auctioneer obligations continue to be a bone of contention because the guidance states that auctioneers should conduct CDD on all bidders if they charge a fee for the privilege of bidding, because that will mean they have a business relationship with the bidder.

Whilst that is correct, the business relationship is not a regulated activity and so it is not until a bidder buys a property that a regulated activity starts and thus the need to conduct CDD.

The guidance still states that auctioneers should conduct CDD on the buyer before the hammer falls. This means it will need to be done on all bidders, even if no charge is made, because the auctioneer has no idea who the buyer will be until the hammer falls.

I also believe that HMRC must provide advice to agents on how they handle the personal data they receive from potential buyers, because the five-year retention obligation does not apply where agents take buyers’ personal information but that person does not buy the property!

This will become more important when the General Data Protection Regulations come into force next year.

We await the next version!

David Beaumont runs EYE’s free compliance helpline for our subscribers, and heads up Compliance-Matters, a business specialising in providing compliance services to agents on money laundering and the many other compliance requirements. He can be contacted on 0161 727 0798 

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3 Comments

  1. NickTurner

    I wonder how many relocation and buyers agents do not realise they have to be registered under the Money Laundering Regulations? The definition of ‘Estate Agency’ even if you do not sell/let property is somewhat wider than many would think. If you register now they will take your annual fee and then issue a notice of fine for late registration. Wonderful!

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  2. Mark Walker

    I have noted on the mailshots of a couple of recent auctions of some larger operators, that they have instructed that all potential bidders must provide id ahead of the auction.  But no stated need to provide source of funds ahead of the auction in the same mailshots.  Presumably because people don’t know how much they will be paying ahead of the auction.

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  3. Trevor Mealham

    On a normal sale the offerers/buyers wont be looking to exchange in the 1-2 hours following agreeing to buy.

    With auction one in the room will likely be exchanging minutes/hours shortly after the hammer falls

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