Mandatory Client Money Protection 1st April
The government has recently announced that from April 1st 2019, all property agents carrying out work in relation to housing in England will be required to be a member of a Client Money Protection - CMP - scheme.
CMP schemes give landlords and tenants confidence that their money is safe when it is being handled by an agent. Where an agent is a member of a CMP scheme, it enables a tenant, landlord or both to be compensated if all or part of their money is not repaid (examples of this may include an agent going into administration or misappropriating funds).
It is already a requirement for Letting Agents in Wales to be a member of a CMP Scheme and to display this to consumers as part of their Rent Smart Wales registration. The Consumer Rights Act 2015 made it a legal requirement for every letting agent in England to display whether or not they were a member of a CMP Scheme, however CMP Schemes are currently voluntary in England.
The government in a statement said: "Larger agents tend to be members of professional organisations which require CMP scheme membership as part of the membership package. Small businesses are therefore less likely to have CMP cover than larger agents. It is therefore important to include small businesses in the mandatory requirement to ensure consumer' money is protected, regardless of the size of the firm, ensuring all consumers are protected regardless of which agent they or their landlord choose".
The requirement will only apply to agents that handle client money. Agents that are unable to obtain CMP would still be able to trade but would not be able to handle client money, for example the tenant would pay the rent directly to the landlord.
The regulations will only apply to letting and property managing agents in the private rented sector. In the leasehold sector, landlords and managing agents are expected to comply with the existing legislation regarding holding service charges and the Codes of Management Practice.
It is thought that the timing of mandatory CMP before the ban on tenant fees, coming in on June 1st, is to ensure that consumers are protected and client money is not lost in the instance of any agent going out of business, as a result of the ban.
The requirement for agents. Agents must:
- Belong to a Government approved CMP scheme.
- Display a certificate which confirms the agent's membership to an approved CMP scheme (including in-branch and on the firms website).
- Produce a copy of the certificate to anyone who reasonably requires it, free of charge.
- Notify all clients within 14 days if their CMP membership is revoked, or they change to a different approved CMP scheme.
- Provide clients with the name and address of the scheme to which they become a member.
- Have and comply with written procedures for handling client money and keep records and accounts that show all dealings with client money.
- Hold client money in a client money account with a bank or building society authorised by the Financial Conduct Authority.
- Hold and maintain professional indemnity insurance cover that is appropriate for the member's size, income, type of work and the amount of client money held.
- Repay any client money, including where feasible any interest earned, without delay if there is no longer any requirement to retain that money or the client requests it.
The regulations also state that the agent must ensure the level of CMP membership provides sufficient cover to compensate clients for the maximum amount of client money that they hold.
Local Authorities will have the powers to:
- Impose fines of up to £30,000 on agents who do not belong to a scheme beyond this date.
- Impose fines of up to £5,000 on agents who fail to display correct scheme membership details on the business premises and on websites.
It's also important to note that if an agency is in breach of the regulations, they will be deemed to have been in breach of the regulation across all local authority areas in which they operate.
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Written by Deb Roberts
Source Estates IT Ltd
