Letting agents are being advised to implement a back-up plan after a high street bank informed clients that it will be closing undesignated client accounts.
The warning from PayProp comes after Lloyds Bank recently contacted 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.
Earlier this month, it emerged that Lloyds Bank has been contacting various letting agencies, notifying them 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’.
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 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.
Neil Cobbold, CEO of PayProp UK said, “This appears not to be an isolated incident as several agents claim to have been contacted by Lloyds. Therefore, 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.
“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.
“However, after review, Lloyds Bank appears to have 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. 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.”