The UK boss of automated rental payment platform, PayProp, has warned that letting agents can expect hefty fines if they fail to comply with complex Client Money Protection (CMP) rules.
Managing Director Neil Cobbold said, “The worry has always been that when a new policy is implemented across the PRS, there is little enforcement to catch those that flout the rules.
“But with over £3m in penalty notices issued across London last year, it is clear that any honeymoon period for CMP compliance is well and truly over and local authorities see lettings businesses as either compliant or not – there is no grey area.”
Cobbold cites the recent example of an agency that had a valid CMP policy, but the director named in the policy resigned and no one updated the insurance. The agency was fined £24,000.
Compulsory CMP rules were brought in for English agencies by the Government in April 2019 and valid Client Money Protection Insurance is a legal requirement in Scotland and Wales as well. They apply to any agent that handles client money.
There are currently six Government-approved schemes including one run by Propertymark – exclusively for their members.
What is covered depends on the policy provider, but in general the scheme reimburses landlords and tenants if client money is stolen by a third party, lost, a letting agency misappropriates it or the business goes into administration. Part of the cost of the scheme is determined by the amount of client money held in the agency’s client accounts – the higher the amount, the greater the risk to the CMP provider.
Not only is CMP a legal requirement for most agencies across the UK, but it is also something agents can use to reassure both landlords and tenants that their money is safe, no matter what happens. This is especially true in 2023 with the cost of living crisis affecting all in the industry, meaning landlords and tenants can ill afford for money to go missing.
Cobbold said: “This is not an MoT situation. Compliance is not health-checked once a year. It is a rolling statutory obligation. When agents are providing details to their CMP provider, they will want to see detailed records of an agency’s client account, including bank statements from the FCA-authorised bank or building society client account provider – so agents must have these to hand.
“Every approved CMP scheme is different, so supplying the correct documentation can be a challenge. But our support team can assist our clients with understanding exactly what is needed from each CMP provider, helping them to keep compliant and free from the heavy fines that could put their businesses at risk.”