"In my opinion, the High Street banks that currently provide most of the client banking within the sector will simply reinforce their position of seeing the sector as too high-risk and will withdraw their services"
- Garrett Foxon - Lettspay
With attention across the property industry unsurprisingly focused on the policy soundbites of the political parties ahead of the General Election, Garrett Foxon says that “Banks have seemingly gone a little quiet in regards threatening and closing agent client accounts although there is evidence that they are no longer opening such accounts for start-up businesses.”
Describing the current position as being “In the eye of the storm” and resulting from working with banking partner Griffin and the Treasury Department, he says “It is clear that the risks of handling client funds within the private rental sector without the appropriate infrastructure and security in place will remain too difficult for the banks to comply with."
Garret adds: "In my opinion, the High Street banks that currently provide most of the client banking within the sector, will simply reinforce their position of seeing the sector as too high risk and will withdraw their services.
"Without the banks making huge investments in updating their legacy systems, it will simply be too expensive and uneconomic to continue to operate as they do now.
"The private rental sector is an important but rare market in that millions of pounds of client funds are being held and processed by unregulated businesses.”
Letting agents handling client money are required to have client money protection cover and keep funds “ring fenced” but monies are nearly always held within an “undesignated” client account where the monies are not separated out by individual client and the risks of crimes such as money laundering become harder to monitor and identify.
Garrett concludes: “The General Election may see a change of Government and it is highly likely that if the Labour is elected, they will bring through increasing regulation including tougher anti-money laundering requirements in the lettings sector as well as seeking to get the property sector regulated and licensed through the implementation of Lord Best’s recommendations in his report on property agents (ROPA).
"There are solutions to the question of non-designated client accounts and, at Lettspay we are now rolling these out across the sector with forward-looking agents who are keen to operate now as “best in class” when it comes to efficiency and compliance and also “future proof” themselves should, or more likely when, and we know the direction of travel, we leave the current eye of the storm and find ourselves in the hurricane of enforced change."
