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

Lord Hodgson of Astley Abbotts Excerpts

Monday 16th March 2020 Grand Committee

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister for the great detail in which he set out this statutory instrument, which is almost a one-line measure which moves a date. Behind that one line, however, is a bigger story.

I should declare my interest as set out in the register as the chairman of the advisory board of the Property Redress Scheme, one of the three ombudsman schemes. As the Minister noted, I also have a proprietary interest in this matter, having been the co-chair of the review group set up by the noble Lord, Lord Bourne, which worked incredibly well. We welcome the legislation.

The problem is: where are we now? As the Minister said, letting agents were told in the other place that this would be their last chance to comply with the CMP regulations, which have been a legal requirement for a year. Compliance was delayed to give letting agents more time to set up pooled client accounts for their landlord and vendor customers and to keep these separate from the turnover of their business.

The problem hidden by this short measure, which the Minister acknowledged in his introduction, is how the banks are helping or not helping the legislation. They take different views depending on the interpretation of the latest money laundering directive. Some do not even accept registration with HMRC as being satisfactory. I understand that government guidance will be published in the not-too-distant future which gives some banks more comfort that they can allow agents to have pooled client accounts. I hope that the Minister will confirm that such guidance is being given, although it seems that some banks have taken a commercial stance not to do so. Just to complete the picture, some forward-looking banks have offered accounts, but, naturally, the agent would have to move to those newer banks on the market.

Some banks claim that they need an individual client’s account for each landlord, which the Minister did not mention. Others have refused to open a client’s account without client money protection in place. However, to obtain client money protection, the agent needs a dedicated, ring-fenced client’s account. Is the Minister aware—given what he said in his introduction, I rather think that he is—of the chicken-and-egg situation of banks requiring CMP to set up an account when a company is not able to obtain CMP without the right bank account being set up?

We pass the law here, but the banks are thwarting that law in how they are allowing these accounts to be set up. I have the figure of 251 agents saying that they are struggling to set up pooled clients’ accounts. In a sense, it is a great achievement that only 251 or 253, whichever the figure is, are doing this—it is a great improvement in providing security for people’s money that is left with letting agents—but it means that 250-odd people want to do this but cannot seem to because of the banks’ attitude.

As a chartered accountant, I used to audit solicitors’ accounts. They always had to have clients’ accounts. They had a pooled clients’ account and, within their ledgers, you separated out that account. There is no need for a separate client’s account for each landlord or letting agent. It is possible to do that within the ledgers. I remember one solicitor who, sadly, I had to report to the Law Society and who was struck off, because he did not operate the system properly, but it exists—you can tie it down in solicitors’ accounts. If they can do it, I do not see why banks are not being more helpful in this instance.

We need from the Minster not only this extra year, which I regret has had to happen—we have the extra year for the reasons explained, which is to be fair to people who would otherwise lose their livings—but some effort to make the banks understand what is necessary. The banks have to be assured that their worries about money laundering can be covered. The Government need to speak to the banks about why they are not co-operating in something that is a great benefit to the housing industry.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank the Minister for his explanation. I just want to intervene briefly. I should make it clear that although I am the Chairman of the Secondary Legislation Scrutiny Committee, which has considered this instrument, I am speaking here for myself.

I draw attention to the fact that this is what happens when an irresistible force meets an immovable object. As a result of the Government’s policy, for a year people’s deposits that otherwise would be covered will not be covered. It seems a shame that we have not been able to find a way to move forward. The noble Lord, Lord Palmer, has told the Committee in great detail about the problems of money laundering. Those of us who take an interest in the financial proceedings in the Chamber know of old that money laundering is the ace of trumps. You just have to say, “I’m doing this because of money laundering”, and the argument is shut down. If someone says, “Hang on, let’s just get some perspective on this”, they are immediately told that they are the money launderers’ friend.

The noble Lord, Lord Palmer, went through the background and what is known in the trade as the KYC—know your customer—regulations. We have all seen it: when we have tried to open a small account of £25 or £50 for a child or godchild, we are into the whole business of utility bills and identification. I raise this issue because I want once again to draw the Government’s attention to the extent to which this thing has got completely out of control.

I have here a copy of the UK Financial Intelligence Unit’s “Suspicious Activity Reports”. The SARs, as they are known in the trade, are the meat and drink of the money laundering business.

If you believe that something suspicious is going on, you have to make an SAR. You are not allowed to tell the person you are making a report about that you are going to report them, because that would be an offence under the Act. In the year to March 2019, 478,437 SARs were reported. That is, on a 250-day working year, about 2,000 a day. It is vanishingly improbable that one in 10 of those is looked at. They just create a huge mountain of paper along the lines of the problems raised by the noble Lord, Lord Palmer, and about which nothing is done.