Draft Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018 Draft Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2018

Michael Fabricant Excerpts

Tuesday 12th June 2018 General Committees

[Mrs Wheeler]

It is a pleasure to serve under your chairmanship, Mr Gray. The regulations were laid before the House on Thursday 3 May 2018. I will refer to them as the approval regulations and the requirements regulations respectively. The private rented sector is an important part of our housing market. It has doubled in size over the last decade, and letting agents now hold approximately £2.7 billion in client funds. The client money held by agents includes rent money and money provided by landlords for the purpose of making property repairs. At the moment, however, there is no legal requirement for agents to obtain client money protection. Tenant and landlord money is therefore at risk if an agent goes bankrupt or if client funds are misappropriated. The main letting agent representatives, ARLA Propertymark and the National Approved Letting Scheme—NALS—support making this protection mandatory. Indeed, it is estimated that around 60% of agents already hold such protection.

[Michael Fabricant (Lichfield) (Con)]

I am curious to understand the context. Can my hon. Friend give any indication of the approximate rate of failures and money lost? Basically, how big a problem is it?

[Mrs Wheeler]

I thank my hon. Friend for his interesting question. I will come to it in the rest of my speech.

Making client money protection mandatory will ensure that every tenant and landlord has the financial protection they need. It will bring the property agent sector into line with others where client money is held, such as the legal profession and travel operators.

Before I set out the detail of the regulations, I want to establish the legislative context. The Housing and Planning Act 2016 provided powers for the introduction of client money protection requirements. Following Royal Assent, the Government invited Baroness Hayter and Lord Palmer of Childs Hill to chair a client money protection working group. The working group reported in March 2017, and its recommendation to make client money protection mandatory was accepted by the Government. The Government consulted on implementing mandatory client money protection in November 2017, and there was broad support for our proposals.

I will now introduce the two sets of regulations. The first set—the approval regulations—establishes the procedure for Government to approve privately run client money protection schemes. The second set—the requirements regulations—requires agents in the private rented sector to belong to one of those approved schemes if they handle client money. These two sets of regulations, which together provide the framework for client money protection, are the subject matter for debate before the House today.

I turn first to the approval regulations, which require any client money protection scheme to be approved by the Secretary of State in order to operate. This is to ensure that all schemes meet minimum standards and offer sufficient financial protection. The Government do not intend to create their own scheme at this time. That would be unnecessary, given the number of schemes in the market already. However, the regulations allow the Government to do so in future, so that any protection can be maintained in the unlikely event that the market ceases to offer provision.

In order to obtain approval, client money protection schemes must meet certain conditions, including those that are designed to ensure that landlords and tenants can easily obtain compensation. The scheme administrator must ensure that it has procedures in place so that valid claims are paid as soon as reasonably practicable—I love that word. It cannot make deductions from those claims. The scheme administrator must also hold a level of insurance cover that is appropriate given the amount of client money held by its members. Schemes must put in place arrangements so that in the event of the scheme closing, their members would be notified and transferred to an alternative scheme.

The approval regulations also establish minimum standards that must be set in scheme rules. They include requirements for members to hold money in a separate client account; to have written, transparent procedures for handling client money; and to maintain adequate records.

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[John Healey]

It is a pleasure to serve under your chairmanship, Mr Gray, and to have the Minister back in her place on the Front Bench.

If the hon. Member for Lichfield and the Minister look at the consultation document on client money protection schemes, they will see that the total funds held by what the draft regulations call “regulated property agents” are estimated to be around £2.7 billion at any one time. The consultation document states that only around 60% of those agents are members of voluntary schemes, and that suggests that around £700 million or £800 million is held by agents that are not part of a scheme. That helps to underline the case for the draft regulations.

[Michael Fabricant]

I am grateful to the right hon. Gentleman for his helpful comments. No doubt we will hear from the Minister about this, but does the right hon. Gentleman have any indication of how many actual failures there have been? Yes, that money is unprotected, but where are the examples—there must be some—of money not being passed on?

[John Healey]

If the hon. Gentleman reads Lords Hansard from 17 March 2016, he will see that my colleague Baroness Hayter of Kentish Town, who led for Labour on the Housing and Planning Bill—as the Minister mentioned, that contains the parental provisions for the draft regulations—in pressing the case for a compulsory scheme rather than the existing voluntary scheme, cited several examples of property agents pocketing money, from landlords as well as renters, and going missing. Baroness Hayter cited six or seven obvious, recent cases, but there is a track record of hundreds of such cases in recent years, which underlines the case for the draft regulations. I encourage him to look at that debate, although the Minister may well give him other examples.

I was diverted before I had started. The Minister has introduced two draft regulations, so will she confirm which four housing regulations she will repeal? It is important for the Committee, before it approves the draft regulations, to understand the consequences for provisions or protections in other fields. If she cannot do that, will she confirm whether the Government’s policy of two out, one in for regulations, which has been their policy for several years, is still in place or whether it has been dumped?

As the Minister said, the draft regulations derive from the Housing and Planning Act 2016, which was given Royal Assent in May 2016. I happen to have led from the Front Bench the opposition, inside and outside Parliament, to that Bill. The draft regulations are, in many ways, a ghost from the past. This debate reminds me of many of the debates we had during the long proceedings on that long Bill. I am reminded, too, of the 19 defeats the Government suffered on it—double the total number of defeats on all the Bills in the previous Session. Of course, that does not count the concessions that the Government made during proceedings on the Bill, which led us to withdraw amendments that we might otherwise have pressed to votes that we might well have won.

That is the background to the draft regulations. Pressed by Labour, both in the Public Bill Committee in this place and in Committee and on Report in the other place, the Government were prepared to talk and to consider this issue further, so, although it very well might have done, it did not register as defeat No. 20.