Posted on

Top tips on how to ensure your AML procedures are up to scratch

Top tips on how to ensure your AML procedures are up to scratch

The property market, and therefore, estate agents have been accused of being the ‘weak link’ in the UK’s money laundering defences.

This is, in the main, because people can buy UK property in the name of a company, rather than an individual. This enables those looking to turn illicit money into clean money through the value of the property and selling it on, or by earning money by renting the property.

And it is for this very reason that HMRC has been cracking down on estate agents, with record-breaking fines levied on estate agents over the past 18 months.

How is money laundered through estate agents?

Money launderers are able to use illicit cash to purchase property by providing misleading or false information about their identity, income or other funds and their sources.

Often, money launderers will not even buy the property outright, but use false information to obtain a buy-to-let mortgage and then clean the dirty cash either through rent or by taking out numerous mortgages on the same property and using them to inflate the value and in effect sell it back to themselves.

They may also use a complicated corporate structure to buy the properties in order to hide the ultimate business owner.

So, what should estate agents do to prevent it?

1. Identification and Verification

The most important part of any anti-money-laundering (AML) procedure is identification and verification.

You must identify and verify the client you are working with, as well as any businesses they own or work through and, where relevant, the ultimate beneficial owner of those businesses.

This means checking that they are who they say they are. To be truly robust, this process will ideally include facial recognition and OCR so that you can compare the ‘real person’ with the documents provided to ensure the information provided is genuine.

2. Screening and enhanced due diligence

The next step is to assess the risk the client poses to your business, so you need to perform sanction, PEP (Politically Exposed Person), SIP (Special Interest Person), RCA (Relatives and Close Associates) and adverse media screening on them.

If anything comes up, you will then need to undertake enhanced due diligence to ascertain if they are true matches or false positives. If they are true matches, you will then need to decide what this information means in terms of the risk that individual or business poses.

3. Anti-fraud checks

While the initial AML checks will identify and verify the client, and the screening and enhanced due diligence will let you know their status in terms of any sanctions on them or if they are in a vulnerable position, you also need to complete fraud checks to ensure there is nothing suspicious going on with their bank accounts, phone records, IP addresses and other devices.

You will need to therefore run checks against global fraud data lists to ensure there is no record of any fraudulent activities against their name or any of their associates or associated businesses.

4. Ongoing monitoring

While identifying and verifying the client, and screening them for sanctions and PEPs is absolutely vital, just checking the client once will not protect your business on an ongoing basis.

In addition to those initial checks, you will also need to continually monitor your client base to ensure that their status does not change and create an AML risk.

You will also need to ensure you have comprehensive records of all initial checks and all ongoing checks to prove you are meeting requirement.

5. Make the switch to electronic verification

The easiest, cheapest, quickest and most reliable way to ensure that you are meeting all your anti-money laundering and anti-fraud requirement, and therefore protecting your business from becoming victim to financial crime is to ditch manual checks and processes and switch to an electronic AML platform.

Electronic verification not only offers estate agents peace of mind that their AML obligations are being met but also enables them to continue to meet those obligations, even if another lockdown is imposed, because all checks can be performed remotely in a matter of seconds.

Posted on

Housing Health and Safety Rating System (HHSRS) Checklist

Housing Health and Safety Rating System (HHSRS) Checklist

Lettings agents, property managers and landlords should all be aware of the Homes (Fitness for Human Habitation) Act 2018. The Act is using the 29 hazards listed in the Housing Health and Safety Rating System (HHSRS) to help define the categories that determine whether a house is “fit for human habitation”. The list had originally been created in 2006 to help local authorities enforce conditions in the private rented sector, but is now a list that lettings agents, property managers and landlords also need to be aware of as far as the safety and fitness for human habitation of their properties are concerned.

Each hazard is assessed separately and can be classed as either Category 1 or Category 2. A hazard is classed as Category 1 if it is deemed a serious and immediate risk to a person’s health and safety. If a hazard is deemed less serious or less urgent, it is classed as Category 2.

Posted on

Living without Section 21 evictions – lessons from the Scottish market

Living without Section 21 evictions – lessons from the Scottish market

The announcement of the Renters’ Reform Bill in the Queen’s speech last December caused a collective groan across the country from many landlords and agents as it stated that it would abolish the use of ‘no fault’ evictions by removing Section 21 of the Housing Act 1988 and reform the grounds for possession.

It also announced that it would give landlords more rights to gain possession of their property through the courts where there is legitimate cause by reforming current legislation. They would also work to improve the court process to make it quicker and easier for landlords to get their property back.

Predictions of a collapse in the private rented sector (PRS) and the exodus of landlords from the market followed. For us, in Scotland, this was old news.

In December 2017, the Scottish Government introduced Private Residential Tenancy (PRT) agreements which ended no-fault evictions in Scotland. There was some trepidation about how this would impact on the PRS as nervous landlords and agents felt that they would lose control of their properties under this new system.

However, almost three years later and the world has not collapsed, the market remains buoyant, and there is evidence that a landlords’ right to evict has, if anything, been strengthened by these legislative changes. There is now a shorter period in gaining an eviction notice and the grounds for eviction remain strong and can be more rapidly enforced.

There remain strong grounds for eviction when it is necessary and there is evidence that the Scottish system is now faster in implementing this. Under the previous legislation, a tenant had to be three months in arrears before a notice to quit could be issued with the reality that this would take a further six months to get to court.

A notice to leave can now be issued at a much earlier stage and there are 18 mandatory and discretionary grounds for repossession under the new system. These include the landlord planning to sell or move into the property, breaches of the tenancy agreement, or anti-social behaviour.

With cases now being heard by the First Tier Tribunal for Scotland (Housing and Property Chamber) – effectively a housing court – which provides a free service with neither party requiring legal representation, we have a more efficient and effective system to deal with disputes.

The housing court covers all disputes from repossessions, repairs, and rent disputes for both landlords and tenants through an independent body which assesses each case and reports on the outcomes.

I do believe that part of the reform of the English system must include the establishment of a housing court. The concern of landlords and agents will be that if there is a dispute in the future without introducing an appropriate ‘property court’ similar to the Scottish Housing and Property Chamber, many landlords may find themselves in legal limbo with a property earning no income and with no resolution in sight.

It is, therefore, essential that the Westminster government introduce a similar system to the Scottish model which addresses the key issues which will arise from current and proposed legislative changes. Only by putting in place in advance of any problems arising from these changes will the UK government be able to pre-empt the potential negative views of many within the sector who see changes such as scrapping Section 21 as completely unacceptable.

Interestingly, there seems to have been no impact on length of tenure since these changes were introduced. Almost three years after the no fault eviction ban was introduced in Scotland, our average length of tenure across all 4,000 properties changed marginally from 29 to 30 months. Therefore, landlords were not forced into longer tenancies than they had previously been accustomed to.

In many respects, the Scottish market is several years ahead of England. In 2012 a ban was introduced on administration fees being charge to tenants. Dire warnings were given prior to the same ban being introduced through the Tenants Fees Bill in England, yet it is in place and the world did not end.

In Scotland, landlords can no longer set short-term tenancy agreements of six months and the Scottish government has already established indefinite tenancy agreements. These are quite radical changes, but people adapt, and the best will not only survive but thrive in this environment.

But more important than changing the legislation is the need to change the mindset of so many landlords and agents. Too often the relationship between landlords and tenants has been confrontational and divisive with each side pitted against the other.

Too often the Section 21 notice makes tenants feel insecure and vulnerable and unable to ask their landlord for basic standards due to a fear of a ‘revenge eviction’. This imbalance of power allows unscrupulous landlords to treat tenants as commodities rather than human beings.

The PRS now accounts for nearly a quarter of the entire adult population and this situation is completely untenable and is the driver of the current legislative programme.

Make no mistake, fairer rights and greater security for tenants is the future for the lettings sector. If existing landlords won’t meet these demands, there are many coming into the market whether through institutional investors’ involvement in Build to Rent or large-scale investors who understand that the private rented sector must change but is here to stay and will provide good returns for decades to come.

Adapting to the new way of renting through greater regulation and fairness for tenants is simply the latest stage in the evolution of the property market and is a development which is, I believe, long overdue. The abolition of Section 21 is not the end but is simply the beginning of major change.