Money laundering regulations for estate agents

In December 2020, the government issued the National risk assessment of money laundering and terrorist financing 2020 report, which increased some estate and letting agents to high-risk for money laundering.

As an estate agent, it’s imperative that you do your part in preventing corrupt elites from utilising the UK property market. But what exactly are you expected to do? 

In case you’re unfamiliar with the new money laundering regulations for estate agents, we’ve broken them down in this guide. 

We’ll cover:

• Money laundering threats for estate agents
• New money laundering regulations for estate agents

While the full scale of money laundering in the UK is unknown and likely only makes up a small part of overall property transactions, the amounts are often significant. 

Estate agency businesses (or EABs) are attractive to money launderers or people seeking to finance terrorism. We’ve listed the main risks your business needs to be aware of:

Money laundering criminals use property as an investment to enhance their lifestyle and/or to integrate crime proceeds into the legitimate economy. 

Since property increases in worth over time, it poses an excellent opportunity for criminals to boost the value of their unlawful earnings. 

Money launderers will specifically target:

• Super-prime properties – being in the top 5% of the local market values, these properties can allow criminals to launder large sums of money. 
• Residential properties – these are at a higher risk because the client turnover is higher, it can be lived in using criminal funds, and the property is easier to sell on. 
• Commercial properties – while residential properties are at greater risk, criminals might buy commercial properties for cash-intensive businesses involved in crimes like money laundering or human trafficking.

If you sell any of these properties, you can mitigate these risks by staying well informed about possible proceeds of corruption. We’ll get into your responsibilities in more detail later. 

Some delivery channels are more at risk than others. 

For example, online EABs are at higher risk than traditional ones. That’s because you have no face-to-face contact with customers, which decreases effective identification. 

Your estate agency could be particularly vulnerable if you deal with customers in higher-risk overseas jurisdictions. 

Why? 

Because it’s more challenging to validate both the beneficial owner and the source of the offshore funds. Money launderers will also take advantage of cross-jurisdictional language, identity, and legal complexity barriers. 

Another potential threat to estate agencies, big or small, is people or businesses who should be registered for MLR supervision but aren’t. 

Here are some warning signs to look out for:

• The structure or nature relationship or entity makes it difficult to identify the true owner
• Settlements in cash, foreign currency, or cleared funds with weak reasons behind it
• Client asking you to hold large sums of money in their account for no apparent reason, which may then be refunded
• Clients or counterparties unwilling or unable to provide information about where the money came from 
• Use of intermediaries without justification
• Multiple payments of smaller amounts, potentially from different accounts

Important note: this is not an exhaustive list of the threats your agency might face. If you want to learn more about it, the government has a page about understanding risks and taking action for estate agency businesses.

Now that you have a better idea of the threats your small estate agency business might face, let’s look at what the government expects you to do about it. 

As an estate agent, you’re required to check beneficial owner registers before working with anyone in your customers’ ownership and control structure. 

You must also report to Companies House about any discrepancies between what you find in your Customer Due Diligence research and what’s listed on beneficial ownership registers. 

If the beneficial owner of a company can’t be identified, you must take steps to verify the identity of senior managing officials instead.

Property agents must also carry out Enhanced Due Diligence for complex or unusually large transactions, but also where:

• There is an unusual pattern of transactions
• The transaction has no apparent legal or economic purpose

Where you work with a landlord or tenant from a high-risk third country, the new money laundering regulations for estate agents say you must also carry out EDD to get additional information about the:

• Customer and their beneficial owner
• Intended nature of the business relationship
• Customer’s and beneficial owner’s source of funds and wealth
• Reasons for the transaction

For more information on working with landlords or tenants from high-risk third countries, click here. 

If you need to identify someone, there are regulations around doing so electronically. You can only perform electronic identification processes if they are:

• Independent of the person whose identity you’re verifying
• Secure from fraud or misuse
• Capable of assuring that the person being checked is who they say they are

If your estate agency also carries out letting that fall within the scope of the new regulations, you’ll need to inform HMRC that you do so. 

You can learn more about when you need to register on the government website.

As a self-employed estate agent, there are a ton of things you need to keep track of. The new money laundering regulations for estate agents are only one part of it.

As with any business, you have to wear multiple hats and juggle multiple jobs to keep it moving. Keeping up with everything can seem impossible at times, so make use of all the tools you can. 

These days, there’s an app for everything from marketing to bookkeeping. You can learn more in our guide on the best apps for self-employed real estate agents.