Published: 30/09/2022 By Lucy Goodgame
Are you doing enough to avoid a penalty?
Figures released by identity verification checks provider, Credas Technologies, show that the sum of fines being issued to estate agents has increased by a staggering 980% in the past year. Interestingly, this surge has occurred whilst the issuing of AML fines overall has declined by almost 19%.
This eye-watering increase in fines for estate agents, set against a backdrop of falling fines in general, does not necessarily stem from a lack of due diligence in the sector. In fact, a significant reason is that estate agency leads the way when it comes to new AML registrations. The sector accounts for a significant proportion of all AML registered businesses, meaning a higher level of fines issued is only to be expected given the sector's greater acceptance of AML compliance.
What’s more, the statistics also indicate that fines in the last two years have actually fallen when compared to the two years before the Covid pandemic struck. In the two years preceding to the pandemic, the sector paid a total of £8.2 million, compared to a decreased figure of just over £4m in 2020-2022.
CEO of Credas Technologies, Tim Barnett, explains “while there may have been an annual spike as the industry has sprung back to life, the estate agency sector has actually seen a reduction in AML fines issued during the pandemic as a whole.”
So why are agents falling foul?
Some incidences are undoubtedly due to non-compliance. Research by AML platform Thirdfort, published in January 2022, showed that a quarter of estate agents in the UK have yet to register with HMRC four years after the law required them to comply. That amounts to 5,540 branches across the UK that could be guilty of a criminal offence and face significant fines depending on the number of branches they have.
Another example is, in spite of the sanctions imposed on Russia after the invasion of Ukraine, many agents have failed to tighten their money laundering checks on new customers. According to AML software firm SmartSearch, gaps in the way potential clients are authenticated were identified in 45% of agents they surveyed, who admitted using hard copy evidence instead of electronic methods. Many were using passports or utility bills to identify new clients, even though 14% admitted they were “not confident” in their ability to spot a fake.
Martin Cheek, SmartSearch’s Managing Director, said: “Our latest survey shows the worrying size of the challenge when it comes to closing the AML loopholes being exploited by criminals…As the Government increases its censures on companies for breaching compliance rules, some are continuing to risk fines and reputational damage by either failing to increase their surveillance in the light of sanctions or relying on outdated manual checks.”
Following HM Treasury approval, in July 2022 the UK Government updated guidance for estate and letting agent businesses supervised for anti-money laundering. It has made it a legal obligation for the business sectors defined by the Money Laundering Regulations – including estate agents - to register for anti-money laundering (AML) supervision from HMRC, officially known as Economic Crime Supervision.
If a business covered by these regulations is deemed to have insufficient AML practices, monitoring, and precautions in place, HMRC is able to issue significant fines.
It is essential that estate agents have a solid grasp and understanding of how money laundering works in property and the regulatory frameworks that they must adhere to. Agents should continue to familiarise themselves with the guidance and take appropriate steps to identify and assess the risks of money laundering and terrorist financing which their business could face.
Even with a good understanding of the current anti-money laundering rules, it can be difficult to keep up with compliance. Quite simply, guidance changes and it is down to estate agencies to stay in touch to protect themselves from hefty fines.
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