Are UK Banks
threatening letting agents’ livelihoods?
2022 letting agent client account banking crisis white paper
White Paper Executive Summary
UK Banks are forcibly closing letting agents client bank accounts which they are required to have under Client Money Protection (CMP) legislation. Some banks are closing accounts or enforcing client accounts per landlord which require a fixed monthly fee.
This white paper is based on a national survey of Estate and Letting Agents who have and have not experienced issues with their banks.
Findings
1.
Every year agents require a CMP letter from their bank for their regulators. Requesting the letter triggers a review by the bank that can lead to either the closing of the client account or a move to separate client accounts per landlord.
2.
Banks are just giving 2 months’ notice of closure but take over 3 months to open a new account. This places some agents in a precarious situation of operating without a client account, which is illegal.
3.
The same banks that are closing accounts or enforcing a client account per landlord for existing customers are allowing new customers to open client accounts.
4.
Banks' reasoning for closures is due to the risk of AML fraud as per legislation set out by the EU in 2018. The level of risk in the industry is an ‘Elephant in the room’ moment, as estate agents account for 0.13% of AML crime, but banks, financial institutions, accountants and solicitors account for 97.69%.
5.
Banks are outsourcing the decision to refuse by using the HMRC money laundering supervision scheme, which only requires an agent to join if they receive a monthly rent equivalent to €10,000. Banks have complete oversight of an agent's transactions and already know the agent will not qualify.
6.
The banks’ actions are opening up more questions that CMP regulators need to answer. Are the banks breaking the law by changing the status of the account, rather than the agent?
7.
Banks are driving small business client account banking to commercial banking, which means increased monthly commercial banking fees that come with having 100s of accounts per landlord. Banks ‘commercialising’ client accounting could generate £582 million a year in monthly account fees, which would be dwarfed by the 25p to 35p transaction fees that would be charged on top.
8.
Agents are small businesses with years of loyally depositing money and paying banking fees. Yet this carries no gravitas regarding the banks’ decisions or recourse with the Financial Ombudsman.
White Paper Executive Summary
This agent’s Facebook post sums up the feeling of the banks’ contempt:
“A massive lack of business acumen. To think we bailed you out! Remember; the UK is built on small business!”
Glyn Trott
CEO of calmony & agentOS proptech group.
- glyn@calmony.co
That lack of acumen is being overtaken with ‘FinTech’ and ‘Bank as a Service’ companies like Calmony.co who have designed specific client account banking, while reducing the AML risk by KYCC (Know Your Customer’s Customer) checks.
More importantly, Calmony gives long term certainty to an agent that they do not run the risk of losing their client account each year.
Glyn Trott
Since the survey was conducted in Q1 2022, Calmony has been contacted by the Insurance Brokers and Right to Manage (RTM) industries who are experiencing the same banking crisis.
The Survey
This white paper presents the research findings related to the experiences residential estate and letting agents are having with UK banks and the provision of designated ring-fenced client bank accounts.
Designated client accounts are a legal requirement of the Client Money Protection 2019 Regulations for property agents who collect residential rents.
Do you need a client account?
Survey Method
The survey received 172 responses from agents regarding their experiences with UK high street banks in relation to losing, getting or keepinga client account.
We asked agents who have and have not experienced issues with their banks; did they have concerns, what actions had they taken, reasons given by banks for refused applications and their opinions.
We collected factual data, measured for sentiment, and accounted for independents, corporates and start-up agents.
This report is ideal for:
Agency owners
Help see how your bank may act over the coming months when it comes to your client account. Provide insight on how other agents coped when faced with losing or not getting a new client account.
Governing bodies &
CMP providers
Help assess the impact of banking decisions on agents/members and the industry. Provide insight into agents’ sentiment on the support and advice provided to them by your organisations.
Do you need a client account?
Is There a Crisis with Client Accounts?
The premise of this white paper was to explore whether there is an issue in the UK with property agents keeping or getting a new client account.
The 172 respondents represent 1.3% of the estimated 12,670* agents who provide lettings; 72% confirmed they have experienced problems or were very concerned they were going to experience an issue with their bank.
*Rightmove 2020 shareholder report figure
CMP Letter* triggers a review
The survey found that before agents received the bank letter, 52% of agents had recently requested:
- a CMP letter, or
- applied to open another client account
The assumption is that these requests trigger a review which leads to:
- Account closure
- Account redesignation
- Reapplying to keep their account
- Opening an account per landlord
The other 48% had not requested a CMP letter or tried to open another client account, but still received the letter.
*A CMP letter is a letter from an agent’s bank confirming the account is a client account; it is an annual requirement to confirm and submit a copy to the CMP insurer.
72% of agents surveyed have had a problem or are very concerned.
“I needed to renew my client account insurance, CMP asked for a letter from my bank confirming RBS would never use client account money to balance another bank account, I pestered RBS many times for the letter and waited for 3 months”
The letter from the bank
The first time agents are aware that there is an issue with keeping their client account is when they receive a letter from their bank saying either:
- We are notifying you of closing or redesignating your client account
- You need to reapply to keep your client account
52%
52% of respondents had asked for a CMP letter before receiving the ‘closing client account’ letter
Which banks are closing accounts?
From the survey, the big 4 banks who provide most of the client accounts in the UK were:
Lloyds
Barclays
HSBC
Natwest
Other banks
Lloyds Santander
RBS Metro
Barclays TSB
Natwest Yorkshire
HSBC
The banks who are closing, redesignating or requiring a client account per landlord:
“I do not understand why Lloyds effectively made me close my account after 20 years and Metro Bank had no problem in me opening a client account”
“Not AML register, no longer have client account (Santander)”
Quick to close versus slow
to open problem
Notice Period
The banks give just 2 months’ notice and in some cases no notice to change or open a new account with another bank.
The challenge is the time it takes to apply for and open a client account with a different bank.
Average time to open an account
Great.gov.uk and Nerdwallet.com report that while Neobanks can open personal accounts as quickly as 2 hours; full business bank accounts can take from 4 weeks to 3 months to open.
The survey found that on average, agents were making 3 separate applications before getting approval.
Average 1 to 3 months to open an account
The timing clash
It is a race between the 2 months’ notice and the 3 months to open an account, giving a real risk of having a period where an agent is either using an undesignated client account or having no client account.
How much notice did the bank give you before closing or redesignating the account?
Quick to close versus slow
to open problem
CMP scheme support
Some CMP schemes were aware that member agents’ client accounts had been redesignated as business accounts.
While the agents were receiving rents into these accounts which is not in line with CMP legislation, their CMP provider was sympathetic to the agents’ predicament while waiting for an application to go through.
The real danger
If trading standards checked those agents, then there was a real risk of them being prosecuted. Those agents affected had to continue to ensure they paid their landlords, otherwise the tenants were at risk of breaching their tenancy agreement.
Neobanks like Calmony take an average of 4 days to open an account
You potentially need to apply to 3 different banks before you’ll get a new client account.
That could take anywhere between 3 to 9 months, and an extra 2 months if you need to apply to HMRC for AML approval.
What were agents' options?
Agents would start discussions with their bank managers to understand why this was changing.
The overriding reason was that the law had changed in 2018 with the EU 5th AML directive which required banks to tighten controls around AML.
So, the agents’ options were:
- Follow banks requirements
- Outsource with a company that can provide a client account
- Sell lettings book
- Close down
The banks requirements were:
- Change the client account to a business account
- Have a client account per landlord
- Close the account
- Re-apply for a new client account
- Register with HMRC AML scheme
- Provide AML policies
- AML check all landlords
The survey found that a number of agents said HSBC and Barclays required them to be a member of PropertyMark and refused to accept or recognise:
Even when it was explained to the banks that these are approved government schemes.
62% applied to open a new client account (sometimes with the same bank)
22% outsource to a provider who could provide a client account (and not for the benefit of outsourcing)
What were agents' options?
HMRC Registration
Metro, HSBC and Santander required agents to register with the HMRC money laundering supervision business scheme; the scheme agents must join if they receive and process monthly rents over €10,000 euros.
The challenge was that most agents don’t qualify as they are not receiving a monthly rent equivalent to €10,000 euros, and HMRC were refusing their application which consequently caused their application for a client account to be refused.
Some agents when faced with losing or not getting a client account had to tell a white lie and say they were processing rents over €10,000 euros (even when they were nowhere near) just to secure a client account and keep paying their landlords.
Agents receiving a single monthly rent over €10,000 euros must register for HMRC AML scheme
Did you know? It costs agents £300 to apply for HMRC AML registration, as well as the £110 annual renewal fee.
Inconsistent banking decisions
While banks decide on their application criteria when opening client accounts, the survey found many examples of inconsistent decisions by the same bank and a significant difference between banks when interpreting the legislation.
Inconsistency No 1
Closing & Opening Accounts
The same banks who are closing accounts, are also allowing agents to open new accounts.
Inconsistency No 2
Account per Landlord
HSBC, LLoyds, RBS and Barclays were insisting on a client account per landlord, while other banks are not offering this option
Inconsistency No 3
Requiring Landlord AML
Some banks require the agent to provide a landlord AML check before the account can be opened.
Inconsistency No 4
Account per Tenant
Some banks insist on an account per tenant payment or per separate rent paid. A big issue for HMO and student agents.
Inconsistency No 5
Varied fees
The charge per landlord client account varied from £8/m to £22 pcm, and on further investigation, once a business has over 100 accounts, banks like Lloyds and RBS move the agent into commercial banking with the £22 pcm fee.
£8 to £22 pcm
Account fees are from £8 to £22 pcm per landlord account
£26,664 a year
An agent with 101 landlords would require commercial banking at £22 pcm per account. Costing £26,664 a year excluding the 25p to 35p per transaction (in or out) fees.
Inconsistent banking decisions
Inconsistency No 6
Can’t open an account per
landlord
Some agents forced to open an account per landlord are now struggling with `the bank.
While this was only mentioned a couple of times, the time taken to open an account per landlord has a significant impact on service. Any barrier to open a landlord client account could potentially put a new managed landlord off using the service, which has a
bigger economic impact for the agent’s growth.
Inconsistency No 7
Saying they offer client accounts when they don’t
Some banks were open to receive applications but at the end of the process explained they were no longer offering client accounts to“unregulated businesses”.
Inconsistency No 8
Requiring PropertyMark but still refusing
Barclays and HSBC, although insisting on an agent being a member of PropertyMark, were still eventually refusing applications to agents who were already members
Banks reasons for not opening a new client account
Banks with highest refusal rate
Lloyds and RBS were leading the way with closing accounts (followed by Natwest and Barclays), which meant they had the lowest application rate for opening a new account.
Reason for refusing
applications
• They don’t offer undesignated client accounts to unregulated businesses
• They no longer offer client accounts to agents
• You are not a HMRC AML registered business
• You are not a PropertyMark registered agent
• You are a HMRC AML registered business but they still cannot issue you a client account
• You are a PropertyMark registered agent but they still cannot issue you a client account
Highest rejection rates:
Lloyds & RBS
Barclays & Natwest
Santander
TSB
Banks reasons for not opening a new client account
Banks outsourcing the rejections
The survey raises questions on whether banks are using the HMRC AML limits as a rejection reason that is beyond their control. With existing customers, they have oversight of the account and can easily see if the agent is receiving rents over €10,000 euros!
Overview of banks client account services
| Closing | Account per landlord | Opening new accounts |
|
|---|---|---|---|
| Bank of Scotland | Yes | Unknown | No longer offering client accounts |
| Barclays | Yes | Yes | Require PropertyMark membership Refusing applications |
| First Direct | Don't seem to offer client accounts | n/a | n/a |
| Halifax | Don't seem to offer client accounts | n/a | No longer offering client accounts |
| HSBC | Yes | Yes | Require AML registration Refusing applications |
| Lloyds | Yes | Yes | No longer offering client accounts |
| Metro Bank | Yes | No | Require HMRC AML registration Refusing applications |
| Natwest | Yes | Unknown | Opening accounts with outsource provider** Refusing applications |
| Opening accounts with outsource provider** Refusing applications | Yes | Yes | Refusing applications |
| Santander | Yes | Unknown | Require HMRC AML registration Refusing applications |
| TSB | Don't seem to offer client accounts | N/A | Refusing applications |
| Yorkshire Bank | Yes | Unknown | Refusing applications |
Overview of banks client account services
There are a lot of EAT and LAT press articles about AML fines mainly relating to Estate Agents and gaps with their AML checks of vendors, but this paper could not find any references to AML
crime that involved lettings.
The only publicly available stats are from the National Crime Agent 2019 report that details estate agents account for 0.13% of AML crime, which relates to the buying and selling of properties; financial activity that does not occur within letting agents’ client accounts.
| April 2018 to March 2019 | Volumes | % of total |
|---|---|---|
| Credit institution - banks | 383,733 | 80.21% |
| Credit institution – building societies | 21,714 | 4.54% |
| Credit institution – others | 10,203 | 2.13% |
| Financial institution - MSBs | 18,940 | 3.96% |
| Financial institution - others | 24,911 | 5.21% |
| Accountants and tax advisers | 5,055 | 1.06% |
| Independent legal professionals | 2,774 | 0.58% |
| Trust or company service providers | 23 | 0.00% |
| Estate agents | 635 | 0.13% |
According to the NCA’s own
report, there is ZERO mention and reference to AML crime within the private rental sector. Breaking this down, the scale of AML crime in lettings is extremely low compared to the volumes of transactions and amounts of money that pass through an agent’s client account.
Regulated businesses such as:
- banks & building societies
- financial institutions
- accountants
- solicitors
account for 97.69% of AML crime
and
Estate agents account for just 0.13% of AML crime
How real is the AML risk?
AML crime requires collusion
To commit AML crime with the renting of the property, let’s put it into context: “The tenant would have to be in collusion with the landlord, laundering money at a market rate from one personal bank account via a client account to another personal or business account.”
Need to get past CMP and Accountant Audits
After all that, you have independent parties auditing and spot checking the client account, checking tenants’ payments in and out.
Any criminal activity is protected by CMP
As the industry knows, client accounts are at a greater risk of misuse of funds.
The Letting Partnership, who carry out CMP schemes’ health checks, find that misuse of client funds is not usually the owner of the agency but the people they employ and trust.
CMP schemes are addressing the risk of misuse and indirect AML crime as they are regulator/
auditors for the government and the insurers.
If the insurer ever needs to pay out, CMP claims will inevitably follow up with legal and criminal action, all the while reducing any AML risk for the banks.
Let’s talk about the elephant in the room.
The bank’s reasoning for closing client accounts is because of AML…
Financial impacts for agents, landlords and ultimately renters
Agents absorbed the increased costs = lower margins
Surveyed agents were asked did they pass on any costs to landlords or increase rents? 90% of agents said they did not increase their fees or increase rents.
The remaining 10% did increase fees to landlords to offset increased banking and outsourcing costs.
10X
increase in client accounting fees
There were numerous examples within the survey of more than 10x increase in banking charges, account per landlord charges, transaction charges and outsource fees.
5X
increase in admin
There were numerous examples within the survey of more than 10x increase in banking charges, account per landlord charges, transaction charges and outsource fees.
90%
Of agents did not increase their fees
Financial impacts for agents, landlords and ultimately renters
Impact on the agency industry
Squeezing out start-ups
50% of the start-up agents surveyed had to give up offering a fully managed service and stay with let only lettings or just an estate agency only service.
Selling lettings books
A smaller number of agents surveyed considered or did sell their ‘lettings book’ to another agent, simply because they could not get a client account or the size of the lettings book did not warrant the cost.
North/South divide
Agents in Northern parts of the UK were significantly impacted by £8 to £22 bank fees where their average rents are much lower and consequently their management fees are too; meaning banking fees have a considerable impact on their income compared to an agent in the South East.
Recession risk
Industry thought leader Peter Knight of the Property Academy has championed that an agent’s business needs to diversify its incomes between property sales, lettings, land & new homes, financial and support services. So, when we get the next recession or pandemic that affects the house sale market, agents continue to operate by surviving on management fee income that lettings bring to keep the agency doors open.
This key component of income is now at risk with agents not being able to grow management income or having to pay high bank or outsource fees, potentially leading to more agencies going out of business.
CMP sentiment
CMP Advice
Some agents expressed frustration over support when they approached their CMP provider.
PropertyMark’s advice for agents to use their approved outsource partner if they were unable to secure a client account was singled out; understandable advice when nearly all the main high street banks were withdrawing client accounts or making it extremely difficult to open one.
Are banks breaking the law?
This survey found that CMP providers were sympathetic with some surveyed members that their client account was converted to a business account so quickly, and not giving agents enough time to open a new account.
The question has to be answered by the regulator, are the banks breaking the law by changing the status of the account, rather than the agent?
In one example, Lloyds stated that they were closing the account and going to send the remaining (client) funds by cheque to the agent. Again, is this bank breaking the law by taking client money and paying it out to a non-client account?
With Landlord accounts, is CMP required?
The CMP legislation references ‘property agents’ who receive rents as ‘pooled funds’ must do so in a designated client account. This is often interpreted as a ‘single’ client account.
Separate landlord accounts mean the funds are no longer ‘pooled’ into a single client account and open a debate around whether or not CMP legislation applies, and the associated memberships and costs with insurances; a question that needs clarification when the CMP legislation is reviewed.
Bank actions are opening up more questions that CMP legislation needs to answer.
Auditing nightmare
Another consideration is if agents have 100s of separate client accounts, how do accountants and the CMP scheme audit those accounts for the annual accountant reports?
Prepare now
Whether you have experienced challenges, are concerned, or not too worried, the conclusion of this white paper is to ‘prepare now’.
Every time an agent asks for the CMP bank letter they run the risk of a review by the bank, so we suggest Plans A, B and C.
Plan A
Apply with other banks and Neobanks like Calmony and open extra client accounts. Remember it could take 3+ months to open a new account and just 2 months to close your existing account. Don’t wait apply now
Open a 2nd and even 3rd client account.
Where you can get a client account:
- Calmony+
- Metro*
+You can open a Calmony client account for free
*Survey found Metro were starting to refuse application
Plan B
Find out if your bank does offer an account per landlord and check:
- Monthly fee per account
- Do you need to AML check the landlord?
- How long it takes to open
- Is it an account per landlord or per tenant
Get Plan A,
B and C
ready
Prepare now
Plan C
Review the outsourcing services that are able to provide you with a client account. Check for:
- Lead-in time to open an account
- Service levels
- Integration with your CRM
- Costs
agentPay
The Letting Partnership
LettsPay
Payprop
Take Back Control Of Your Client Account With Calmony
The digital client account for letting agents
Agents’ final thoughts
Are banks a law unto themselves?
Agents express frustrations that there is no recourse to appeal the banks’ decisions. Even the Financial Ombudsman acknowledges that banks have the ultimate control over client accounting.
Agents felt the banks are a law unto themselves, as within their terms of business they can close, freeze and change the client account to a business account.
Agents’ biggest concerns
- High banking charges per separate landlord account
- High outsourcing costs
- That they will not be able to open a client account
- Challenges of managing an account per landlord
- Being refused HMRC AML registration
- Banks’ insistence on PropertyMark membership when not a membe
Agents’ final thoughts
Overwhelming support for this survey
I am glad you have instigated this survey as it is a nightmare we can all do without! thank you.”
Do you need a client account?
We can have you set up in a few days*
Authors finals thoughts
Agents’ livelihoods
Most agent owners of a single branch agency do the client account payments to ensure their landlord gets paid, it is their job and livelihood.
The decisions by banks are now affecting that livelihood when agents are forced to pay high bank fees per landlord account and/or forced to outsource to get a client account.
Agents are small businesses in the eye of the bank and even when they have years of loyalty it carries no gravitas when it comes down to appealing the decision to close a client account.
I think this agent’s Facebook post sums up the feeling and banks’ contempt:
“A massive lack of business acumen. To think we bailed you out! Remember; the UK is built on small business!”
The banks strategy
It does not make sense that banks are giving up holding vast sums of client money and deposits, funds which form part of their cash reserves which we assume they are allowed to lend multiple times and charge bank fees for providing the accounts.
The ONS reported in 2017 that there were 2,202,205 tenancies protected in England with the three deposit schemes. If banking fees are between £8 and £22 pcm per client account, banking fees from client accounts in England are worth between £112million and £582million a year!
Excluding transaction fees at 35p!
Authors finals thoughts
From the survey responses detailing the banks’ actions, it is my opinion that the banks’ strategy is to move the lettings industry from free business banking to chargeable business banking and even commercial banking by using the veiled threat of AML crime as a reason to move agents to a chargeable client account per landlord and even per tenant business model.
This seems to be a
“commercialisation of client accounting”
by the banks, and all the while the ‘elephant in the room’ about the risk of AML in lettings is not being demonstrated in hard facts.
Hard facts like over 97% of all AML crime is by ‘regulated’ banking, accounting and solicitor firms.
The ethical debate on making money from tenants’ and landlord clients’ money has mostly been addressed with the mandatory deposit registration legislation in 2007.
Legislation with mandatory requirement for CMP insurance in 2019 further addressed issues around protecting and consequently stopping people using and making money from tenants and landlord clients.
My question is, are the banks now looking to make money from tenant and landlord client money in the form of banking fees from an industry that does not get a lot of sympathy from the public?
Client accounting banking fees in England alone are worth
between £112million to £582million a year, not
including 0.35p
transaction fees
Authors finals thoughts
Reduce risk with open banking
Open banking could offer a very simple solution by allowing CMP providers read only access to agents’ client accounts. Auditors such as The Letting Partnership could spot check an account via open banking and report to the CMP scheme any irregularities.
Final thought, be prepared
with Plan A
Every agent, every year is at risk when they ask for the CMP bank letter triggering a review and 2 months’ notice of closure or increase in bank fees for accounts per landlord.
Start by opening a second and third client account with Neobanks and high street banks now. Spread that risk so you can keep receiving rent, pay landlords and critically protect your management fee income.
Glyn Trott CEO of Calmony and agentOS Proptech Group.
Former managing director of a 3-branch agency that managed over 850 properties