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

Lord Kennedy of Southwark Excerpts

Monday 16th March 2020 Grand Committee

Finally, I am not clear why, if you cannot get an account as an agent, you cannot join a deposit protection scheme. You might wish to leave that and have your own client account later; I understand you can do it on a custodial or an insured basis, but it seems to me that there is a way there for us to say, “From this moment on we will make sure that every tenant’s deposit is protected. You may do it by getting a bank account, if you can; if you cannot, join a deposit protection scheme and, once the bank can help you, you will be in a position to move across and have your own account with the bank.” My concern about these regulations is not that they are bad—they are not—but they would be unnecessary if we thought more clearly about what we are trying to achieve and more creatively about how we might move it all forward.

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I thank the noble Earl, Lord Courtown, for presenting these regulations to the Committee and explaining their purpose to us. I understand why the Government have had to table the regulations. In that sense, I fully support them. As the noble Lord, Lord Palmer of Childs Hill, set out, the problem here is that some banks do not offer client accounts, making it difficult for people who want to comply with the legislation and do the right thing to get the account to do what they need to do. That is very frustrating. I understand the point about needing the extra year and I fully support it.

The noble Lord, Lord Hodgson of Astley Abbotts, was absolutely right that some bigger organisations seem to be able to channel hundreds of billions of pounds through UK banks with no problem at all. That is fine, but when a small person trying to run a small business in the local area sets up a client account, they get caught by money laundering rules. I like the idea of maybe having de minimis rules. We need to find something to get over this. It seems ridiculous. Transparency International will talk to you about the amount of money going through some of these major UK banks; the money is from all sorts of jurisdictions around the world that certainly have less regulation—it may be more dubious where these funds are coming from. They can buy property all over London and elsewhere with no problem at all. They can do what they want.

However, for a small trader trying to run a business and do the right thing who comes up against the money laundering regulations, things are not done for you and you cannot run your business and serve your clients properly. That cannot be right. I hope the Government at least talk to these banks. It is unacceptable. You have to allow these businesses to do their job properly. They are required by law to have these accounts and protection; they need a way to actually have them or, if not, to be able to find some way forward—maybe the way suggested by the noble Lord, Lord Hodgson of Astley Abbotts—that they can enact themselves.

[The Earl of Courtown]

My Lords, all noble Lords commented on how important this issue is. Mandatory client money protection is an important part of the Government’s suite of existing and proposed policies to drive up standards in the private rented sector and gives landlords and tenants the confidence they need when using an agent.

I thank my noble friend Lord Hodgson, and the noble Lords, Lord Kennedy and Lord Palmer, for their contributions. I will deal with the questions put. Should any more detail be required, I will of course write to noble Lords after I read Hansard.

The noble Lord, Lord Palmer, started off with an issue that all noble Lords referred to: how the banks are helping, or not, in this situation, and what they are doing to address these issues. These are the issues that we expect the guidance to pick up on and address. We must remember that this is a low-risk sector, hence the low level of problems in getting pooled accounts—I think some 2.5%. I repeat what I said in my opening speech: forthcoming guidance for banks from the Joint Money Laundering Steering Group on their obligations under money laundering regulations will help to address the need for proportionality—which is what I think all noble Lords were referring to—when assessing the risk of non-regulated firms, such as letting agents.

The noble Lord, Lord Palmer, referred to his days as an accountant and looking at solicitors’ clients’ accounts. I was an agricultural property manager, collecting rents for agricultural land and the let sector. I wholeheartedly agree with him on the importance of making sure that clients’ accounts are tip-top and up to shape; it is so important for the client and the individuals involved.

My noble friend Lord Hodgson talked about the money laundering regulations. He was basically saying that they have got out of control. I will draw the attention of the responsible department to his views on that matter, which will of course write to him in due course. He went on to ask about client money and tenancy deposit protections. The client money protection and tenancy deposit protection are two separate matters. Agents can join a tenancy deposit protection scheme without being a member of a client money protection scheme. I hope that is clear to my noble friend. Finally, I thank all noble Lords for their contributions and commend the regulations to the Committee.

[Lord Kennedy of Southwark]

Could the noble Earl say a little more about where we are with what the banks are doing? It is unacceptable that hundreds of millions of pounds of illegal money goes through our banking institutions every year with no problem whatever, but they claim that they have strict money laundering procedures in place. We know that property is bought elsewhere using money gained from criminal activities, but nothing appears to be done about it. However, as the noble Lord, Lord Hodgson of Astley Abbott, has said, if you are the little person running a small firm and you want to open a client account, you cannot open one. That is ridiculous.

[The Earl of Courtown]

My Lords, I thank the noble Lord, Lord Kennedy, for asking that question. The banks have to comply with HMRC policy. There may be more that I can add in due course, so I will write to him and distribute the answer to all noble Lords attending the Committee.