The grace period for letting agents to open client accounts for clients’ money will end on 31 March 2020.
On 1 April 2019 the Client Money Protection (CMP) Regulations came into force. These Regulations required lettings agents to become a member of a government backed client money protection scheme. However, some schemes were empowered to offer smaller agents a grace period of 12 months to allow them time to open a client account. This grace period will end on 31 March and from 1 April 2020 all agents will need to hold clients’ money in a client account. Our pervious post on CMP can be read here.
Client money paid by a landlord or tenant to an agent who is a CMP scheme member is protected by insurance. This means money which belongs to a landlord or tenant can be recovered in the event of its loss by the agent for one reason or other.
Client money includes rent, holding deposits and a management float. Security deposits are not considered client money. From the 1 April 2020 this client money will need to be held in a client account that is regulated by the Financial Conduct Authority. Where agents have not already done so, by then they will also need to ensure that they have client money handling procedures in place which are appropriate for their business and hold sufficient indemnity insurance at all times.
Local authorities will enforce the CMP regulations and are required to give agents 28 days to respond to any notice of breach. After the 28 days the local authority may choose to impose a financial penalty notice setting out the amount to pay, the agent’s right to appeal and the reasons for the penalty. Any appeal by the agent will need to be made at the First Tier Tribunal within 28 days of the local authority’s final notice.
There are 2 financial penalties which can be imposed at the moment. The first is a maximum of £30,000 for failing to become a CMP scheme member and the second is £5,000 for failing to display the scheme certificate properly. Consequently, agents who fail to open a client account by 1 April 2020 risk losing their membership of a scheme and facing the above fines.