Overcoming Banking Barriers for Start-Ups in 2024

There is a lot of talk about banks closing the client accounts of existing letting agents, but what about those new entrants to the industry, who are struggling to find banks willing to even open client accounts for them in the first place? We attempt to provide some guidance:

The Problem

At The Letting Partnership, we see more and more start-up letting agents coming to us because they simply cannot gain access to a client account. Those who want us to take on their day-to-day client accounting can side-step the issue because we can set up a designated client account for them, but if an agent wants to go it alone then what is the problem? Let’s look briefly at the history…

In 2019 it became mandatory for all property agents in the private rented sector in England¹ handling clients’ money to join a government–approved Client Money Protection (CMP) scheme. Membership requirements of the schemes require the agent to hold a ring-fenced client account. By keeping money ring-fenced from other business activities, agents can use it for the sole purpose of handling and distributing deposits, rents, and fees. They come in a few guises – designated or pooled/undesignated.

In 2020 Anti Money Laundering (AML) legislation was tightened, and heightened regulatory scrutiny, aimed at combating financial crimes such as money laundering and terrorist financing, has compelled banks to reassess their risk exposure. Estate and letting agencies are not regulated by the Financial Conduct Authority (FCA), which makes our industry less appealing to banks which highly value the rigours of the FCA. Consequently, they have adopted a more cautious approach, scrutinising client accounts more closely and terminating, or refusing relationships that are deemed high risk.

We know of one major high street bank who would only open a client account once the agent had Propertymark membership – however, to join Propertymark the agent has to show they have a client account in place. It’s a chicken and egg problem!

Following months of lobbying by Propertymark and MPs, the UK Government has finally taken notice and HM Treasury recently published a consultation paper aimed at enhancing the effectiveness of the Money Laundering Regulations 2017 which impose obligations on businesses, including those in the property sector, to prevent money laundering and terrorist financing.

The consultation offers the potential for improved access to Pooled Client Accounts for letting agents who are not fully supervised by HMRC for anti-money laundering.

Other solutions

As the industry grapples with this challenge, letting agents must explore alternative solutions.

Agents can opt to outsource the client accounting to a third party. These days there is plenty of competition for your business so take time to scan the options for the best solution for you.

Some companies offer stand-alone electronic money accounts and if you only want a banking solution then this could be for you. Before committing, however, you should check with your CMP provider that the company meets the scheme’s compliance criteria.

You could alternatively choose a banking platform provider who can offer a client account as an add-on to your existing software. Be aware though, that if your lettings software is already in place, this could involve duplication of work and/or unnecessary upheaval and you’re still the one pressing the buttons!

The Letting Partnership offer a simple hands-free solution by providing the client account as part of our outsourced client accounting package. A small, dedicated team, trained on your own chosen software, work on your existing software and provide support. For more information about how we can help you just call us on 01903 477903.