Financial sanctions for letting agents – what you need to know

Letting agents need to meet new reporting obligations as part of the UK Financial Sanctions Regulations – with the new rules coming on 14 May, but what does this mean?

Financial sanctions can be used by the UK Government to restrict a ‘designated person’s’ financial affairs. This could include, for example, freezing their assets, or restricting their investment – and are a tool that can be used where there are concerns over national security, the UK financial system, or if there is a foreign policy issue.

The sanctions can apply to anyone within the territory of the UK and to all UK citizens, wherever they are in the world.

What does this have to do with letting agents?

Under the Financial Sanctions Regulations, certain businesses – referred to as ‘relevant firms’ are subject to reporting obligations – and from 14 May these rules are being extended to include letting agents.

I am an agent, what are my obligations?

Under the regulations any ‘relevant firms’ which ‘knows or has reasonable cause to suspect’ that someone is either a designated person or has committed a breach of financial sanctions regulations must report it to the Office of Financial Sanctions Implementation (OFSI) as soon as possible.

If the designated person is a customer of a relevant firm, then they must also report to OFSI the nature and amount or quantity of any funds or other economic resources held by it for the customer.

For a letting agent, this may be any rent that is collected to be passed on.

You only have to report this information if it came to you in the course of carrying on the business, not if it came to an employee in their personal capacity. 

What needs to be included in the report?

When reporting, you must include: 

• the information or other matter on which the knowledge or suspicion is based   

• any information you hold about the person or designated person by which they can be identified   

• if you know or have reasonable cause to suspect that a person is a designated person and that person is a customer of your firm, you must also state the nature and amount or quantity of any funds or economic resources held by you for that customer.   

How does this relate to Anti-Money Laundering Rules? 

Letting agents may already be familiar with the Anti-Money Laundering rules which apply to rented properties with a monthly rent of over 10,000 euros or more.

These new financial sanctions rules are separate from these and apply to lettings agency work regardless of the rental value.

When does my reporting obligation begin? 

The Government guidance goes into a lot of detail on this point, but we can summarise it as follows: 

• At the point you receive instruction from a prospective landlord and begin doing work for them. If in the course of that work you find out they are a designated person or have breached financial sanctions, you should report this to OFSI 
• You don’t have to report a prospective tenant as being someone who is a designated person or has breached financial sanctions until such a point as the prospective tenant’s offer is accepted by the landlord. This is due to the large number of prospective tenants that may be encountered and could leave letting agents with a lot of reporting work to do 
• If you are doing work in response to instructions from a prospective tenant to find them somewhere to rent, then similarly you only have to report the prospective tenant or landlord if you believe them to be a designated person or committed breaches of financial sanctions once they are concluding an agreement. 

What is classed as letting agency work? 

As with other legislation that only applies to letting agents, there is a comprehensive definition of what constitutes letting agency work as far as these rules are concerned.

The rules state such work must be carried out by a firm or sole practitioner, and so cannot be carried out by an individual acting in their own personal capacity, with the official Government guidance including  further detail about which arrangements are – and aren’t – covered by the new rules.

For the full Government guidance on these forthcoming regulations and your obligations click here.