Letting agents and individual client accounts

Neil Cobbold

August 22, 2019

Neil Cobbold (pictured) is chief operating officer of PayProp UK

Following the news that a popular bank is notifying clients that it will be closing undesignated client accounts, it’s becoming crucial for letting agents to have a back-up plan when it comes to payments and banking.

It recently came to light that Lloyds Bank has been contacting numerous agents, asking them to open separate client accounts for all of their individual landlords.

The move to close undesignated client accounts could be the bank’s response to existing anti-money laundering legislation, which is set to be tightened in 2020.

It also acts as an extension of the legal requirement for agents to operate separate client money and business accounts, which has been in force since April this year.

Lloyds contacting agents over client accounts

Various letting agencies have been contacted by Lloyds and told that undesignated client accounts will be closed with 60 days’ notice.

The bank has offered its letting agency clients two options – to close undesignated client accounts and replace them with multiple designated client accounts, or to close their undesignated account and make ‘alternative banking arrangements’.

This appears not to be an isolated incident as several agents claim to have been contacted by Lloyds.

With this in mind, all letting agencies need to be thinking about the way they will handle their client payments from now on.

Those that bank with Lloyds must consider whether they want to open individual client accounts for each of their landlords or consider alternative options. Those who use other banks may have to prepare for similar action.

An extension of Client Money Protection rules?

Earlier this year, alongside the need for agents to operate separate client money and business accounts, it also became a requirement to join a Client Money Protection (CMP) scheme.

The rules require agencies to hold money in a client money account with a bank or building society authorised by the Financial Conduct Authority (FCA).

They must also comply with written procedures for handling client money as well as keeping records and accounts that show all dealings with client money.

A lot of agents may have thought that the introduction of mandatory CMP and the requirement for separate business and client bank accounts would be enough to ensure transparency and satisfy the banks.

It appears, however, that Lloyds Bank has decided that the best way to comply with anti-money laundering regulation is to mandate that any client money must be held in one account per landlord.

We believe this approach is likely to have been influenced by current and proposed legislation and could be followed by other banks soon.

Whatever happens in the future, agencies must have the necessary procedures in place, with a clear audit trail and professional approach to record keeping.

How can agents manage payments effectively?

In light of Lloyds’ actions, many agents will be wondering whether they should now consider opening client accounts for each of their landlords. They may also be worrying about the prospect of additional banking fees and administration work.

If the thought of opening and managing hundreds of separate client bank accounts is concerning, there is a range of things you can do to put your mind at ease.

You could switch banks or explore PropTech options which could help you to manage your payments using automation.

The news from Lloyds should act as a warning for agencies, encouraging them to spring into action and get a plan in place, as this is an issue which is unlikely to go away and could escalate further in the coming months.

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