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

Alex Cunningham Excerpts

Monday 2nd March 2020 General Committees

[Alex Cunningham (Stockton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies. You will be pleased to learn that I do not intend to detain the Committee for long. The Labour party does not intend to vote against the measures, but the Minister has some questions to answer.

We are told by the Government that a private trade body, the joint money laundering steering group, is updating its guidance to help banks understand better the low risk that letting agents actually present. The Department told us, as the Minister said, that it had expected the final guidance to be published before 1 April 2020, but, due to unforeseen complexity, it will not be, so the Government are having to extend the grace period for another year, to 2021. Why is it taking so long? How on earth can people handing over thousands of pounds, if not hundreds of thousands of pounds, have confidence that their money is safe while the Government allow agents a grace period when they can, in effect, do what they like with their tenants’ cash?

According to data given to the Secondary Legislation Scrutiny Committee, as of 31 December 2019 some 9,978 letting agents holding just under £3.4 billion in funds had obtained membership of an approved client money protection scheme, of which all had an appropriate client account or were making every reasonable attempt to obtain one. Does the Minister know how many such memberships there are and how many letting agents are still making a supposedly reasonable attempt to get one?

Some 251 letting agents reported difficulties in obtaining an account during the period of October to December 2019. If nearly 10,000 letting agents have managed to obtain the necessary account, why have those others failed? Are they simply not getting their finger out because no one is cracking the whip? Is it not their responsibility in any shape or form? If everyone else managed to do it, why did they not? What estimate has the Minister made of the total number of letting agents who handle client money but do not have a separate client account, including those not part of a client money protection scheme? What estimate has his Department made of the amount of landlords’ and tenants’ money held by letting agents not in a separate client account? Does he have the answers to those questions? If not, will he find out and publish that information?

Let us not forget that mandatory client money protection is crucial to give landlords and tenants confidence that their money is safe when it is being handled by an agent, and they do not currently have that. A failure by Ministers at the Department to get a grip of the process means that there will be a further delay in many landlords and tenants getting that protection and reassurance. What chance do Ministers have of fixing the broken market for private renters if they cannot get even a simple money protection scheme in place?

Why did Ministers outsource the job of providing reassurance to banks that providing client money accounts would not fall foul of money laundering regulations to the private joint money laundering steering group? What is the unforeseen complexity we are told has been experienced in producing the guidance, according to the Department’s guidance to the Secondary Legislation Scrutiny Committee? How long has the group had to produce the guidance? What deadline has the Minister set for that guidance to be provided? That failure lets down tenants and landlords. I hope that the Minister may be able to publish some guidance for the protection of landlords and tenants who end up having to hand over their hard-earned cash to agents who have yet to provide the protection that their money needs. Will he do that?

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[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.

[Alex Cunningham]

I am interested to understand—I have lost my point. I beg the Minister’s pardon. I will come back to it.

[Christopher Pincher]

I am grateful. In the course of his remarks, the hon. Gentleman asked how many agents are in difficulty. The figures that I have suggest that the number of agents who reported difficulties in obtaining a client account as of 30 June 2019 were 488. More recently, as of 31 December 2019, that number had fallen to 251—about 2.5% of the total membership.

The hon. Gentleman also asked why that small number of agents are unable to get an account, and why they are not, as he put it, “pulling their finger out”. The regulation states that letting agents must make all reasonable efforts to secure a client money account. We would therefore expect them to demonstrate that they have gone to a bank to open a relevant account, but were refused and have the documentation to demonstrate it. We would then expect them to work with the approved scheme of which they are a part to find an alternative bank offering pooled client accounts to letting agents, and open an account with them. Mechanisms are in place to ensure that those people who are as yet unable to open an account are doing the right thing and “pulling their finger out”.

[Alex Cunningham]

The shadow Minister has now managed to get his finger out as well. I asked how long the relevant body has had to produce the guidance so far, and whether he had placed any deadline on it—or could we be back here in 12 months’ time because of further complexities?

[Christopher Pincher]

We expect the committee to conclude its work this spring—so in short order. As I have made clear to the hon. Gentleman and to you, Mr Davies—and as our words are recorded in Hansard the industry will hear this too—we shall not be extending the statutory instrument beyond April 2021. We expect it to report shortly, but clearly it has to do so, and conclude its business, within the year.

I think that I have answered most of the questions. If I have not, I am happy to write to Members with further particulars. However, I hope we can now give this fairly straightforward SI a smooth and quick passage.

Question put and agreed to.