Estate agents face 'regulatory timebomb'

Estate agents are facing a “regulatory timebomb” because of a lack of regulatory guidance hampering 5MLD adoption, research revealed.

According to LexisNexis® Risk Solutions, estate agents are only halfway through their Fifth EU Anti-Money Laundering Directive (5AMLD) implementation plans, despite the regulation coming into force in January 2020.

Estate agents, conveyancers and mortgage brokers are industries who must implement the regulations to ensure compliance with new requirements, including tighter ID checks.

The research revealed that the vast majority (95 per cent) of estate agents say the regulator should give more information on how they can make their compliance programmes more effective, suggesting that they feel unable rather than unwilling to ensure compliance and financial due diligence.

SJ understands that guidance has already been drafted but is currently under review at HMRC following concerns around how it deals with high value letting agencies.

The findings are based on a survey of more than 875 compliance professionals across the real estate, banking, accountancy, lending, wealth management and legal sectors.

LexisNexis said additional guidance is “particularly important given that estate agents predict that more anti-money laundering (AML) regulation is imminent” as a result of Brexit. It said 89 per cent were expecting to see more AML targeted regulation.

However, David Smith, a partner at JMW Solicitors, said: “Agents and solicitors are bound by 5MLD and its implementing, regardless of the existence of full guidance on this. Once the full guidance is published, however, its interpretation will also form part of the regulations and will effectively become binding at that point.”

He added: “Agents and conveyancers therefore need to adopt a conservative approach to the regulations in anticipation of the Treasury and HMRC adopting a robust approach in their guidance.

"Otherwise, they will risk finding themselves far behind the requirements of the guidance with a near impossible regulatory mountain to climb.”

Non-compliant firms risk of penalties for non-compliance and could be allowing illicit activity to go undetected.

Nina Kerkez, director of UK&I Consulting at LexisNexis® Risk Solutions, said the regulatory burden of 5MLD is “hugely challenging” for all industries.

“But it appears that compliance professionals in the estate agent industry have been on an uphill battle to try and meet the Directive’s requirements”, she added. “It’s not the case that estate agents are resistant to the changes, far from it in fact; they’re able to see the value such regulation can bring to fighting financial crime.

“Instead, it appears there is a disconnect between the regulator and the support the industry requires to meet its obligations.”

Kerkez said better collaboration from the regulator and the wider private sector is necessary to ensure all industries are aware of their obligations, and the steps they need to take to ensure compliance.

“As part of this”, she said, “it’s vital that estate agents are made aware of the tools and technologies available to ease the pressures of complying with regulation, and how they can streamline their compliance processes.”