Today (10 January 2020) is the deadline for the UK to implement the Fifth Money Laundering Directive (5MLD).
Despite holding a consultation and promising to have this done in good time the government has been less than effective about fulfilling its obligations. There has not been any published response to the consultation and at the time of writing (the afternoon of 9 January) no guidance has been published on the implementation of 5MLD. However, regulations have been published and these come into effect on 10 January so the government has technically complied with its obligation to the EU, even if it has done little to comply with its obligations to UK businesses!
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 amend the original Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. From the point of view of the residential property sector, the key change is to add high value tenancies to the regulated sector, alongside estate agency.
The regulated sector to which AML controls will now apply includes any property being let or managed both on the basis of a landlord or tenant instruction so letting agents and relocation agents will both be covered. This only applies as long where the letting is for a month or more so short lettings will not be included. There is no clarity about renewed lettings and this is where guidance would be of help. The regulated sector also only applies to lettings where the monthly rent (pro rata) reaches or exceeds €10,000 (currently just under £8,500) for at least one month of the letting. It has been suggested that this figure is per transaction and so agents will need to look at the entire relationship with each landlord. However, the regulations discuss instructions to let land to another person and seem to be directed very much at a single letting of a single piece of land rather than a portfolio and so this interpretation seems strained to say the least. However, guidance on this issue would also be welcome.
Where 5MLD does apply then letting and relocation agents will need to have conducted a risk assessment of their business and a risk assessment of the transaction which fits within the overall business risk assessment. They will then need to have carried out the appropriate level of due diligence to identify the persons involved in the transaction and the source of the relevant funds.
Naturally, this will only affect a small part of the sector dealing with the highest-value lettings, principally in London. However, it will increase costs in that market considerably. The somewhat belated approach to dealing with this and the failure to produce timely guidance will also do little to build confidence in government regulation among property agents.