What would HMRC do? Blog 1

6th February 2018

There is still widespread confusion amongst estate agents when it comes to compliance with the Money Laundering Regulations according to Landmark’s Estate Agency Services Division.

Recent research undertaken in the form of a short survey has shown that agent’s still struggle with applying practical solutions to remain compliant.

In a series of short blogs, Landmark’s Ben Robinson talks through the results of the survey. In our first blog we discuss the timing of Customer Due Diligence (CDD).

In a key change implemented in June 2017, estate agents are required to undertake Customer Due Diligence on vendors AND purchasers;

An estate agency business enters into a business relationship with both parties to the transactions, i.e. the property seller and the property buyer (4.4)

In a question regarding the timing of Customer Due Diligence on vendors, 10% of respondents incorrectly identified that CDD should be undertaken either at the point valuation, or anytime up to an offer. In fact, the regulations require CDD to be undertaken at the point a business relationship is established. For vendors, this is at the point of engagement and prior to listing the property.

Similar confusion arises when applying CDD on purchasers where 48% of responses suggested CDD should be done prior to putting an offer; which would require agents to undertake checks on all those who put in an offer (unless in cases where are sealed bids are legally binding, in which case all bidders must be checked).

The advice from HMRC is clear;

a business relationship is entered into with a buyer… when the buyer’s offer is accepted by the seller… Prospective buyers are not included in a business relationship (4.6)

Indeed, HMRC go on to advise;

The other party’s identity and where applicable the identity of beneficial owners must be verified before the contracts are exchanged.

In order to ensure it is completed on time you may consider that a helpful trigger point to begin the process of due diligence would be around the time when the terms are agreed, normally on the signing of a Memorandum of Sale in residential sales or Heads of Agreement in commercial sales. (4.12)

As prospective purchasers are excluded from the need to apply CDD, you only need to check the buyer(s) whose offer has been accepted. If a purchase falls through, you must complete CDD on the next party to have an offer accepted.

Your checks must be done at the point you enter into a business relationship with the buyer, i.e. at the point the offer is accepted and prior to the exchange of contracts.

From a best practice point of view the application of CDD on buyers is done at the point an offer is informally accepted.

 

Link to HMRC Guidance: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/628696/Estate_Agency_Businesses_Guidance_.pdf 

 

Electronic checks from Compliance in a Box fully comply with the obligations outlined.

A clear, interpreted result is provided in each case to enable the agent to make an informed decision about proceeding with the transaction.

Find out more about how you can use electronic checks to demonstrate Customer and Enhanced Due Diligence with pay-as-you-go checks from Landmark. No contracts, tie-ins, set up or data fees. Contact Samantha Peacock on 01524 220013/ sam.peacock@landmark.co.uk or sign up below

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