Mandatory Client Money Protection – what do landlords need to know?
Date online: 15/10/2019
On April 1 2019, the rental sector shifted into a new era of even greater professionalisation with the introduction of mandatory Client Money Protection (CMP) membership for letting agents.
But what’s it all about? Here, we take a closer look at the lettings sector’s most recent significant milestone…
What is CMP?
It’s now become a legal requirement for all letting agents to be a member of a CMP scheme, which offers greater protection to landlords and tenants in the event that a letting agent misappropriates or fraudulently uses rent or deposit money that they have been holding on behalf of their clients.
It is believed a significant number of letting agents were already members of a scheme, either voluntarily or through membership of a trade body, before the mandatory element came into play – with estimates suggesting that between 60-80% were already signed up.
But it’s hoped that making it mandatory and a legal requirement will bring those who aren’t already signed up into line and further reduce the chances of rogue operators slipping through the net and treating landlords and tenants unfairly.
CMP schemes provide consumers with the ability to reclaim their money if it is used fraudulently, stolen by the agent or the agency goes bankrupt. With letting agents holding approximately £3 billion of client money, it makes perfect sense that consumers should have the right to claim their money back if it is misappropriated, and it’s hoped that mandatory membership of a CMP scheme will further deter the minority of rogue agents looking to take advantage of landlords and tenants.
Who is offering CMP?
The government has approved a number of CMP schemes in recent months, with five key industry bodies offering agents the means by which to hold money safely and securely. These are as follows: Propertymark, Client Money Protect, Money Shield, NALS Client Money Protection and UKALA Client Money Protection.
As well as being a member of one of the approved schemes, all letting and property management agents also need to hold client money in an account with a bank or building society which is authorised by the Financial Conduct Authority (FCA) and hold and maintain appropriate professional indemnity insurance.
In addition, agents need to have appropriate CMP handling procedures in place as well as obtaining a certificate confirming their membership of an approved CMP scheme, which needs to be displayed prominently in their offices and on their websites. Agents are also required to provide a free copy of it to any person who may reasonably require it.
The ongoing professionalisation of the lettings sector
The move towards mandatory client money protection is just the latest part of the government’s long-term plan to professionalise the sector, in turn ridding the industry of the minority of rogue agents.
The Ministry of Housing, Communities and Local Government says that, at some point in the future, it intends to introduce a mandatory code of practice and a nationally-recognised qualification for agents.
At the start of this year, the government also outlined plans to reform the housing complaints system, with a single one-stop shop for property redress.
The proposed measures included the introduction of a new Housing Complaints Resolution Service with the aim of helping anyone with a property transaction dispute, the requirement for all private landlords to belong to a redress scheme and the need for developers of new homes to sign up to a New Homes Ombudsman.
A Redress Reform Working Group, made up of representatives from across the sector, is being established to develop the proposals before they are introduced in the future.