Draft Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) (Amendment) Regulations 2020

Lord Beamish Excerpts

Monday 2nd March 2020 General Committees

[Mr Kevan Jones (North Durham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies. I do not object to the regulations, but are we setting up here a system for wholesale fraud and money laundering by unscrupulous individuals? I do not suggest for a minute that most letting agents are unscrupulous; most are legitimate businesses providing a service, and anything that protects clients’ money is important. However, I am concerned about these pooled accounts. As the Minister said, they are not like ordinary bank accounts, because they contain not the business’s money but someone else’s money. Some large letting agents could hold money from several hundred thousand people in one account. Who is going to ensure that these pooled accounts will not be used as a way of money laundering?

Surely an easy way around it would be to have fictitious tenancies. Say for example that I invented you as an individual, Mr Davies, and said that you had rented a property and given me £2,000, and I put it into an account, and several months later I say that the tenancy has finished and I have to pay you the money back. Are we not possibly creating a problem for the banks in how they monitor these accounts?

Likewise, if we have individuals who legitimately give a letting agent £100, but what is put into the account is another £900, or £1,000 altogether, there is no way of linking individuals. Will the bank have any oversight of how many individuals the money covers? Otherwise, it does not take a genius to work out how someone could quite clearly manipulate these accounts to launder quite large sums of money, especially if we are talking about large numbers of individuals.

I do not object to the regulation, but I wonder about the way it has been set up, who will be looking at these accounts and whether there will be a random audit, for example, of individual pooled accounts. Otherwise, it could be open to a lot of fraud. I am not suggesting for one minute that the majority of letting agents would do this, but it is interesting to note that whenever the Government or the state invent a new tax or a new system, there are always people looking for ways to exploit it. This would be an obvious one for them to be able to do so.

[Christopher Pincher]

I am grateful to the spokesman for the official Opposition for agreeing to support this statutory instrument, and to the right hon. Member for North Durham for his questions.

The hon. Member for Stockton North asked a number of questions. He began by asking how letting agents and their clients can have confidence that their money is not being in any way misappropriated or misused. I point him to the statistics, which show that since 1 April 2019, there have been only 37 valid client money protection schemes, totalling less than £14,000, against the scheme, which manages £3.4 billion of client money. Therefore, the confidence levels of those people, whether they be landlords or tenants, should be high. That also goes some way to addressing the questions asked by the right hon. Member for North Durham.

[Mr Kevan Jones]

I am talking about how bank accounts will be operated in practice and who will look at them. I should think that the majority are perfectly fine, but who will be looking at whether those pooled accounts are proper pooled accounts or are being used for fraudulent activity? Who will actually do it?

[Christopher Pincher]

The right hon. Gentleman is perfectly entitled and right to ask those questions. We have robust anti-money laundering legislation, as he knows—he has probably debated it in the Chamber of the House of Commons. We believe that the counter-terrorist financing supervisory regime is comprehensive. The banks have to look at the money passing through their accounts, and that is one reason we are here today, because they are taking care, as they properly should, to ensure that the money passing through the accounts they manage is clean. That is placing a burden on a small number of letting agents, who we do not believe are engaged in any money laundering and whose funds we do not believe are significant, but who none the less want to conclude their business.

[Christopher Pincher]

My hon. Friend makes the point even more eloquently than I can. Fundamentally, we have robust systems in place to protect against money laundering. I do not think that the extension of the statutory instrument will undermine them in any way.

[Mr Kevan Jones]

I am not suggesting that; all I am saying is that we are opening up a potential route for money laundering. There is clear evidence, in my constituency and others, where property prices are very low, that a good way of laundering illicit gains is to buy a property and, in some cases, to rent them out through individuals whom the hon. Member for East Worthing and Shoreham might want to say are legitimate. In some cases they are not. All I am trying to get to is the money laundering mechanism, and what we will do to ensure that banks, or anybody administering those pooled accounts, are scrutinised. I ask the question to put it on the record.

[Christopher Pincher]

The right hon. Gentleman makes his point. Pooled accounts exist already, and are managed by regulated organisations and groups. We are trying to ensure that the unregulated bodies—the smaller organisations that we do not believe present a significant risk—can do their business as well. That is why the joint committee is doing its work.

The hon. Member for Stockton North asked why the joint committee is doing that work, rather than some other body. It is because the joint committee combines the United Kingdom trade organisations and representatives of the financial services industry. We believe that it is best placed to ensure that the right level of regulation can be put in place—the right method of ensuring that banks can feel that the systems that they operate are sensible, compliant and deliver safeguards against money laundering.