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Response to HM Treasury’s ‘Consultation on the transposition of the Fourth Money

Laundering Directive’ from National Association of Estate Agents (NAEA) and Association of Residential Letting Agents (ARLA)

November 2016

Background

1. The National Association of Estate Agents (NAEA) provides consumers with high professional standards and integrity in all property transactions. NAEA has a high media profile, analysing market trends and speaking on property issues on behalf of more than 10,000 offices from across the UK property sector.

2. The Association of Residential Letting Agents (ARLA) is the UK’s foremost professional

body for letting agents. ARLA represents over 8,000 members from more than 2,500 companies in over 7,500 branches. ARLA campaigns in the best interests of consumers – for mandatory regulation, client money protection, independent redress and professional indemnity insurance. Using an ARLA Licensed Member provides landlords and tenants with high professional standards and greater financial safeguards than the law demands.

Questions Chapter 3 - setting an absolute turnover threshold Question 1: Do you agree with the proposed turnover threshold of financial activity being set at £100,000 as one of the criteria to comply with in order to be exempt from the directive? Please provide credible, cogent and open-source evidence (where necessary) to support your response.

3. NAEA and ARLA neither agrees nor disagrees with the proposed turnover threshold of financial activity being set at £100,000 as one of the criteria to comply with in order to be exempt from the Directive. This is because our members are caught by the legislation anyway and will not be able to take advantage of any thresholds.

Question 2: The government would welcome views on whether a maximum transaction threshold per customer and single transaction should remain at £836 (EUR 1,000). Please provide credible, cogent and open-source evidence (where necessary) to support your response

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4. This is not an issue that effects our members to a large extent. However, we agree with the current maximum transaction threshold per customer and for single transaction.

Chapter 4 – customer due diligence (CDD) measures Question 3: When do you think CDD measures should apply to existing customers while using a risk-based approach?

5. We think CDD measures should apply to existing customers when there is a material change in circumstances. These factors should be determined by the agency and not be a prescribed list that they must adhere to. Here we would point out that this issue is more likely to affect letting agents rather than estate agents. This is because estate agents are more likely to deal with a one off transaction rather than ongoing relationships that can continue between a landlord, letting agent and tenants when a property is let.

Question 4: What changes to circumstances do you think should warrant obliged entities applying CDD measures to their existing customers? E.g. name, address, vocation, marital status etc.

6. We think that a change of name and address should warrant estate agents and letting agents to apply CDD measures to their existing customers.

Question 5: How much does it cost your business to carry out CDD checks? Please provide credible, cogent and open-source evidence to support your response.

7. The main cost for agents carrying out CDD checks is time although staff chasing clients for documents has a salary cost implication. Alternatively, some of our members will use electronic third party checking services, which mean that agents do not have to see, copy and retain any original documents from the client. In terms of costs we know that Smart Search, a unique Anti-Money Laundering verification platform, charge for example £750 for a specified amount of individual or businesses searchers.1

8. From a business point of view staff training is essential, particularly when taking on new staff, and this could take a few days or up to a week each month to ensure they fully understand the Money Laundering Regulations. We recommend training annually and for agents to keep records accordingly.

Question 6: We welcome responses setting out how you have converted the Euro thresholds into GBP under the existing Money Laundering Regulations, for example, is the currency

1 http://www.smartsearchuk.com/

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exchange the subject of a set policy? We would also welcome your views on what would be helpful to you when dealing with a conversion from Euro to GBP.

9. We do not have a set policy for currency exchange. Our members work out the equivalent in sterling when dealing with a conversion.

Chapter 4 – simplified due diligence (SDD) measures Question 7: Do you agree that the government should remove the list of products subject to SDD as currently set out in Article 13 of the Money Laundering Regulations (2007)? If not, which products would you include in the list? Please provide credible, cogent and open-source evidence to support inclusion. What are the advantages and disadvantages of retaining this list?

10. We would point out here that agents who receive instructions from Banks and Building Societies in relation to re-possessed properties rely upon this list of products as set out in the 2007 Money Laundering Regulations and apply SDD. As a result we would like to see parts (2) (a) and (b) of Article 13 in the 2007 Regulations retained.2

Chapter 4 – pooled client accounts Question 8: What are the money laundering and terrorist financing risks related to pooled client accounts and what mitigating actions might you take? Please provide credible, cogent and open-source evidence to support your response.

11. When an estate agent receives or holds a clients’ money this is required to be kept in a separate client bank or building society account or accounts. However we know that some banks, who also have client due diligence obligations under the Money Laundering Regulations, are unilaterally changing the status of these accounts from client to office, but estate agents are not being informed. The banks previously did not make the connection and as a result new businesses are at a disadvantage. In addition to this, where estate agents hold a tenancy deposit and they can’t put money into a client account they would be in breach of Tenancy Deposit legislation. If letting agents were also brought in under the scope of the Fourth Money Laundering Directive we think this would provide banks with the reassurance they need, they know the property sector is being policed correctly and where the money is coming from. Consequently, this would reduce a barrier that can make it hard for estate agents and letting agents to operate.

2 http://www.legislation.gov.uk/uksi/2007/2157/contents/made

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Question 9: What would be the effect of the removal of SDD measures on pooled client accounts? Please provide credible, cogent and open-source evidence to support your response.

12. The removal of SDD measures on pooled client accounts could make it harder for our members to operate.

Question 10: What are your views on the retention of SDD measures on pooled client accounts? Please provide credible, cogent and open-source evidence to support your response.

13. Further to our answer given in response to Question 8 we would like to see banks stop de-risking because of the Money Laundering Regulations. This is creating difficulties for estate agents and letting agents to open client accounts in an environment where there is greater legislation being introduced requiring client money to be held in correctly designated client accounts.

Question 11: What are your views on the situations described by the ESA’s where SDD may be appropriate on pooled client accounts? Please provide credible, cogent and open-source evidence to support your response.

14. It is our view that it would be difficult to do SDD on pooled client accounts within the lettings sector because of the large churn in customers.

Chapter 4 – simplified due diligence (SDD) Question 12: Are there are any other factors and types of evidence of potentially lower risk situations, aside from those listed in Annex II of the directive, that you think should be considered when deciding to apply SDD? Please support your response with credible, cogent and open-source evidence where possible.

15. Yes, there are other factors that we think should be considered when deciding to apply SDD. For instance, LPA Receivers where repossessed property is in the possession of a bank and an agent has been instructed to sell it. In these circumstances the agent may need to do SDD.

Chapter 4 – enhanced due diligence (EDD) Question 13: Are there any other products, factors and types of evidence of potentially higher risk situations, aside from those listed in Annex III of the directive, which you think should be considered when assessing ML/TF risks in respect of EDD? Please support your response with credible, cogent and open-source evidence where possible.

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16. There are no other factors aside from those listed in Annex III of the directive that we think should be considered when assessing ML/TF risks in respect of EDD.

Question 14: Are there any high-risk products from sectors other than the Financial Services sector that you think should be included in the Regulations?

17. We do not think there are any high-risk products from sectors other than the Financial Services sector that should be included in the Regulations.

Question 15: What EDD measures do you currently apply to clients operating in high-risk third countries, including those on FATF’s black, dark grey and grey lists?

18. The guidance that we provide for members around EDD is not country specific. Our guidance states that EDD is required if the customer has not been physically present for identification purposes. In order to establish the customer’s identity we advise agents to seek additional documents, data or information.

19. Furthermore, determining EDD will be determined on a case-by-case basis and should

enhance the basic CDD that will have already taken place. This is likely to be a key role of the Money Laundering Reporting Officer (MLRO) at the agency. The NAEA in particular has long held the view that the guidance from HMRC about the Money Laundering Regulations should include working examples of estate agents who have submitted SARs and the outcome to better explain to staff and MLROs about how long the process can take and what happens if the report is acted upon or not.

Question 16: How much does it cost your business to apply EDD measures? Please provide credible, cogent and open-source evidence to support your response.

20. As we outlined in response to Question 5 obtaining CDD takes time and therefore carrying out EDD will take more time and more than likely require paying for further checks via a third party checking service.

Chapter 4 – reliance on third parties Question 17: What are your views on the meaning of a ‘member organisation’? Please provide evidence in support of your answer.

21. We would associate the meaning of a ‘member organisation’ with a professional body. Question 18: What are you views on the meaning of ‘federation’? Please provide evidence in support of your answer.

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22. We would not link the meaning of ‘federation’ with something that has corporate structures or arrangements.

Question 19: If you are a financial institution, are there any additional institutions or persons situated in a Member State or third country that you think could be relied upon in order to help reduce the regulatory burden on businesses e.g. the third party applies due diligence and record-keeping requirements and are appropriately supervised in accordance with the directive?

23. It is not relevant for us to answer this question. Question 20: Do you rely on third parties to meet some CDD requirements? How much does this cost your business? Please provide credible, cogent and open-source evidence to support your answer.

24. Yes, some of our members will use third parties to meet some CDD requirements. For instance LonRes, the London Residential Network, provides an agent-to-agent anti-money laundering compliance service ensuring that all LonRes subscribers are adhering to the latest rules.3 This includes the requirement of conducting due diligence on the principle agent in a sub-agency relationship. The subscription cost and structure is flexible and tailored for individual subscribers, but we understand it can cost around £99 per annum.

Chapter 4 – assessment of risks and controls Question 21: Should the government set a threshold of the size and nature of the business for the appointment of a compliance officer and employee screening? If so, what should the government take into account?

25. Yes, the government should set a threshold linked to the financial turnover and number of employees an agency has for the appointment of a compliance officer and employee screening.

Question 22: What should be taken into account when screening an employee?

26. We think that criminal record checks and any unspent criminal convictions should be taken into account when screening an employee. It is also relevant to check an employee’s identity.

3 https://www.lonres.com/public/products/res-check

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Question 23: Should the government set a threshold for the size and nature of the business that requires an independent audit function? If so, what should the government take into account?

27. Yes, we believe that the government should set a threshold for the size and nature of the business that requires an independent audit function. This threshold should be on the turnover and number of employees an estate agent has. If the agency falls below the threshold then the audit should be done internally.

Question 24: What do you think constitutes an “independent audit function”?

28. Both NAEA and ARLA think that an “independent audit function” constitutes an audit carried out by a suitably qualified individual who is not connected to the agency via family member links or business associates.

Question 25: How many of the controls listed at paragraph 4.34 are you already carrying out and what is your assessment of the likely costs of these procedures?

29. Members of NAEA and ARLA are regulated by an organisation called the National Federation of Property Professionals (NFoPP) Regulation. The body regulates individual members of NAEA and ARLA as well as companies which fall within the jurisdiction of both organisations. NFoPP Regulation regulates a company (legal entity) when it has a principal (sole trader), partner (partnership or LLP) or director (limited company) who is a member of NAEA or ARLA and is active in a business area relevant to the member’s work – such as residential property sales, residential property management, residential property lettings, Block Management or land and new homes. We call this a PPD (Principal, Partner or Director) firm.4

30. NFoPP Regulation has co-authored anti-money laundering guidance for our members

with the Royal Institution of Chartered Surveyors, Association of Relocation Professionals and the Association of Residential Managing Agents. As well as this guidance we have also created an Identity Verification Form to assist members in collecting important information regarding a property or land transaction. We also provide a form that members can download to provide the full details of their MLRO plus the Deputy. The organisation has also collected details across our membership about who the MLRO is in order to keep them up-to-date with all the important legislation updates and any additional useful information around anti-money laundering. Furthermore, NAEA and ARLA host a number of free masterclasses around the country to keep members up-to-date with any changes in legislation, to discuss

4 http://www.nfopp-regulation.co.uk/how-we-regulate/

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current industry trends and to invite top industry speakers to present. NAEA also provide a Financial Crime training course.5

Chapter 5 - gambling providers Question 26: Do you think that the government should consider exempting proven low risk providers of gambling services from the Regulations based on the gambling activity or by a complete sector (see the list at paragraph 5.8 or Annex C for information on how the sectors are split up) or both? Please explain the reasons behind your response.

31. It is not relevant for us to answer this question. Question 27: Which gambling providers or activities do you think should be classified as having ‘proven’ low risk and therefore should be exempt from the Regulations? Please provide credible, cogent and open-source evidence to support your response.

32. It is not relevant for us to answer this question. Question 28: Should CDD requirements for the gambling providers or activities take place: (i) on the wagering of a stake; (ii) on the collection of winnings; (iii) on the collection of winnings and the wagering of a stake; or (iv) or whichever is the latter? Please explain the reasons behind your response.

33. It is not relevant for us to answer this question. Question 29: What do you think constitutes a ‘linked transaction’ for different types of gambling? Do you think ‘linked transaction’ should be defined in legislation?

34. It is not relevant for us to answer this question. Question 30: If covered by the Regulations, what costs and impacts would be incurred by the providers of the gambling services? Please provide sources for your data and suitable evidence. In particular, the government is keen to know what your initial transition costs would be, how much you would need to spend on staff training and how much it would cost to apply CDD measures.

35. It is not relevant for us to answer this question. Question 31: What advantages would there be for increasing the coverage of the Regulations to more than just casinos in the gambling industry?

5 http://www.naea.co.uk/info-guides/money-laundering-regulations/

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36. It is not relevant for us to answer this question. Question 32: Do you believe that measures could be taken by the Gambling Commission under the Act that might have a bearing on whether you view a sector or activity as being proven low risk?

37. It is not relevant for us to answer this question. Chapter 6 - electronic money Question 33: How should the government apply the CDD exemptions in Article 12 of the directive for electronic money (e-money)?

38. It is not relevant for us to answer this question. Question 34: Should e-money products which do not meet the criteria for the CDD exemptions in Article 12 of the directive be considered eligible for SDD under Article 15?

39. It is not relevant for us to answer this question. Question 35: Should the government exclude any e-money products from both the CDD exemptions in Article 12, and from eligibility for SDD in Article 15?

40. It is not relevant for us to answer this question. Question 36: Should the government increase the maximum amount that can be stored electronically to £418 (EUR 500) for payment instruments that can only be used in the UK? Question 37: Please provide credible, cogent and open source evidence of low risk posed by electronic money products, the efficacy of current monitoring systems to deal with risk and any other evidence demonstrating the position of low risk.

41. It is not relevant for us to answer this question. Question 38: E-money products with a maximum monthly payment transactions limit of £209 (EUR 250) will be exempt from some of the CDD measures, but only if they are used in that (one) Member State in which they were acquired. What do you think the likely customer behaviour response to this will be? Please provide credible, cogent and open-source evidence to support your response where possible.

42. It is not relevant for us to answer this question. Question 39: The government welcomes views on the likely costs that may arise for the e-money sector in order to comply with the directive.

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43. It is not relevant for us to answer this question.

Chapter 7 – estate agents and lettings agents Question 40: What are your views on the regulation of lettings agents? Please explain your reasons and provide credible, cogent and open-source evidence where possible.

44. NAEA and ARLA believe that letting agents should be regulated under the Fourth Money Laundering Directive. In the last 15 years the size of the private rented sector has more than doubled and now accounts for almost one-fifth of all dwellings in the UK.6 As homeownership becomes out of reach for more people we are likely to see further growth of the private rented sector.

45. Letting agents hold a significant amount of money from deposits, rents, service

charges and ground rent which highlight the opportunities for cash payments to be made over estate agents. Furthermore, it is relatively easy for someone to obtain a rented property and then use it for a cash based business. Individuals may then subsequently use criminal money to buy property and/or launder money through various layers of activity as highlighted in the case of Bradford businessman Aqeel Khan.7

46. CDD must be carried out on the tenant and landlord. Checks on any potential

customers will help letting agents avoid committing a money laundering offence and protect the reputation of their business. Checking a landlord’s identity will also prevent invalid agreements which can lead to letting agents losing out on fees. Checks on tenants will reduce the risk of properties being used for what could be illegal purposes. Furthermore, for landlords if a tenant gets caught money laundering, their funds will be frozen, resulting in no rent.

Question 41: What other types of lettings activity exist, aside from those mentioned at paragraph 7.9? Of these activities, which do you think should be included in letting agency activity? Please explain your reasons and provide credible, cogent and open-source evidence where possible.

47. Aside from the types of lettings activity mentioned at paragraph 7.9 we think that Let Only Service should be included in letting agency activity. Many landlords use Let Only Service because they feel comfortable maintaining relationships with the tenant such as collecting rent and managing the property themselves. The letting agent will act as

6 http://www.lse.ac.uk/geographyAndEnvironment/research/london/docs/GRP12392---LSE-report-design-WEB2.pdf 7 http://www.dailymail.co.uk/news/article-2884106/Businessman-funded-luxury-lifestyle-expensive-properties-flash-cars-laundering-millions-gangsters-jailed-six-years.html

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a filter because many landlords don’t have the time or are not comfortable carrying out numerous viewings or calls. However, once the tenant has been selected, referenced and approved as suitable the landlord will take over managing the property.

48. Another type of lettings activity that exists are letting agents who rent and manage property on behalf of local authorities. There is also the issue of a license agreement rather than tenancy where the landlord is living in the property and the need to carry out CDD. Letting agent contracts with a landlord and holiday and short term lets should also fall under types of lettings activity within the Fourth Money Laundering Directive.

Question 42: Do you think HMRC alone or HMRC and self-regulatory bodies should be appointed supervisors of estate agents and lettings agents? Please explain your reasons and provide credible, cogent and open-source evidence where possible.

49. NAEA and ARLA both think that HMRC and self-regulatory bodies should be appointed supervisors of estate agents and letting agents. We would advocate professional bodies acting as the self-regulatory body for their members and HMRC would remain as the supervisor for agents who are not members of these bodies.

50. We feel that self-regulatory bodies acting as supervisors are best placed to understand

their own sectors and to gather information about developing risks and anti-money laundering methodologies. In discussions we have had with HMRC it is clear that they have very little understanding of developments in estate agency and the fringe areas of the sector, such as online estate agents.

51. Furthermore, HMRC does not publish an annual anti-money laundering enforcement

report and there are no thematic papers produced by HMRC or detailed reviews of compliance. Therefore allowing self-regulatory bodies to become supervisors for the estate agency sector would allow HMRC to put more resources into monitoring those agents who are not part of a professional body, whilst self-regulatory bodies can continue to drive up standards amongst their members.

Question 43: Do you think that lettings agents should apply CDD to both contracting parties?

52. Yes, NAEA and ARLA think that letting agents should apply CDD to both contracting parties – the tenant and the landlord. It is also important that CDD is carried out on the purchasers of property. This is a vulnerability in the property market. For instance, in a property transaction estate agents are usually the first to be contacted by sellers. However, estate agents can’t always rely on a third party, such as a solicitor or financial institution, to carry out customer due diligence. This is because a solicitor or

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financial institution aren’t involved in the process until the business relationship has started. Additionally, because estate agents do not handle the transfer of money we think there needs to be a more integrated approach with financial institutions, solicitors and estate agents working together to gather information. Through greater co-ordination we think the different actors involved in the transaction are more likely to flag pinch points or review critical events to prevent illicit purchases from taking place.

Question 44: The government would welcome views on when the establishment of a business relationship should commence with a) the tenant and b) the landlord (in regards to lettings activity).

53. The establishment of a business relationship commences when the landlord/agent agrees to let the property to the tenant for both landlord and tenant on agreement because this is when a contract is formed. Until then either party can walk away.

Chapter 7 – due diligence and intermediaries Question 45: Should estate agency businesses apply CDD to both contracting parties in a transaction in which they act as intermediaries? Please explain your reasons and provide credible, cogent and open-source evidence where possible.

54. Yes estate agency businesses should apply CDD to both contracting parties in a transaction in which they act as intermediaries. As outlined on page 33 of the consultation documents the anti-money laundering regulation for estate agents only requires due diligence checks on the seller, not the purchaser. This relies on lawyers to cover any estate agency risks, which leaves the checks vulnerable to complicit lawyers. This was highlighted in the Channel 4 documentary From Russia with Cash.8

55. However, under the Money Laundering Regulations there is no legal requirement for

the (ultimate) owners of property to be publically available in the Land Registry. The Land Registry currently only lists legal owners (including UK companies and entities registered in tax havens). As a result we believe that the Land Registry must also include overseas companies and be able to distinguish between residential and commercial properties in order to make it easier for agents to verify and ascertain information on the seller as well as the buyer.

Question 46: Should sub-agents be able to rely on principal estate agents (see 7.16)? Please explain your reasons and provide credible, cogent and open-source evidence where possible.

8 https://www.theguardian.com/uk-news/2015/jul/07/london-estate-agents-caught-on-camera-russian-buyer

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56. Yes, sub-agents should be to rely on principal estate agents. For instance, in London it is common practice for an estate agent to take on an instruction and to use sub-agents to find a buyer. However, many sub-agents in London are concerned that under the current rules they can’t rely on the main agent’s own due diligence and must carry out their own checks. As a result this means multiple checks have to be carried out on directors and the agency’s other clients. It also means different agents contacting sellers on multiple occasions to carry out checks. Ideally, sub-agents need to be able to share the anti-money laundering check information on clients from the main agent whilst being cognisant of Proceeds of Crime Act and the necessity to report.

Question 47: How much does it cost your business to apply CDD checks and what would the cost be if you were to apply them to both contracting parties in a transaction?

57. Here we refer to the answer we gave in response to Questions five and 20. Chapter 8 – correspondent banking relationships Question 48: What impact will implementing the definition of correspondent banking have on your firm’s policies and procedures? What impact do you estimate these changes will have?

58. It is not relevant for us to answer this question. Question 49: Is there any further information that could be provided to ensure the adoption of a risk-based approach when applying enhanced due diligence to correspondent relationships?

59. It is not relevant for us to answer this question. Chapter 9 – politically exposed persons (PEPs) Question 50: How do you differentiate between risk management systems and risk-based procedures?

60. We would define risk management systems as something that assists with the collecting and monitoring of information, whereas risk-based procedures are the policies and procedures an agency will put in place to combat money laundering.

Question 51: Under the terms of the directive, all PEPs are considered to be high risk. However, obliged entities may use a risk-based approach to both the identification of a PEP and the depth of EDD measures that are applied to them. What risk factors do you think are relevant when deciding how to identify a PEP and adapt EDD measures to them? Would more

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clarity in guidance be helpful to avoid the disproportionate application of EDD measures to low-risk groups and their families?

61. In 2015, there were 1.2 million property transactions in the UK.9 However, according to the National Crime Agency these only generated 355 Suspicious Activity Reports.10 Considering this low number, we believe that the Government need to provide further simple tools and training to help agents and senior managers assess the level of risk. In relation to PEPs, the Government should issue an easily accessible PEP list and advertise widely. This is even more important now that there is no longer a distinction between a domestic or foreign PEP. Furthermore, we don’t think that a majority of agents or senior managers will know how to define a middle-ranking or more junior official to distinguish whether EDD is necessary.

Question 52: The directive specifically applies to members of parliament or of similar legislative bodies and to members of the governing bodies of political parties. In the UK the Electoral Commission maintains two registers of political parties: one for Great Britain and a separate register for Northern Ireland. There are over 400 registered political parties, of which the vast majority are very small. Should there be some form of criteria or some examples set out in guidance of the political parties to which this applies, e.g. those having elected members of Parliament, the European Parliament, or the devolved legislatures? If so, what is the reasoning behind the use of these particular criteria or examples? Would guidance on this issue assist and, if so, what should the guidance include to provide clarity?

62. Yes in order for agents to understand the different Parliaments that politicians are represented we would welcome guidance and examples to whom the registers represent. Notification of elections or by-elections should also be updated and provided to agents directly or via the Supervisor to pass on. Additionally, we believe that simpler language must be used to explain information. For example, legislative bodies should be simply put as the Welsh Assembly, Scottish Parliament and Northern Ireland Assembly.

Question 53: How will the express inclusion of members of parliament or of similar legislative bodies and members of the governing bodies of political parties interact with the existing rules and regulations for political parties and elected representatives, in particular the Political Parties, Elections and Referendums Act 2000, and what steps should be taken to avoid duplicating these existing regimes?

63. We think that the Electoral Commission is best placed to answer this question. However, we do think that agents will need to know where to find a list of these individuals and bodies.

9https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/561024/UK_Tables_Oct_2016__cir_.pdf 10 http://www.nationalcrimeagency.gov.uk/publications/677-sars-annual-report-2015/file

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Question 54: Does the extent of EDD on the family members of PEPs and individuals who are known to be close associates of PEPs correspond with the measures that are appropriate for the PEP themselves? Which risk factors do you think are relevant?

64. Yes, we think that the extent of EDD on the family members of PEPs and individuals who are known to be close associates of PEPs correspond with the measures that are appropriate for the PEP themselves.

Question 55: How much does it cost to identify and apply EDD checks to PEPs? Please provide evidence to support your response.

65. Again, here we would refer you to our responses given to Question five and 20. Question 56: Is the guidance sufficiently clear about how EDD should be applied to PEPs, their family members and their known close associates? If not, what should the guidance include to provide clarity? With regard to financial institutions, are there specific changes that could be made to the Financial Crime Guide or the JMLSG guidance to clarify the treatment of PEPs? What specific changes could be made to the guidance in other regulated sectors?

66. We would refer back to the answer we gave in response to Question 51. Question 57: The Financial Ombudsman Service has statutory powers to consider complaints from PEPs, their family members and their known close associates against financial service providers. Can this provide sufficient access to redress for PEPs? The government would be particularly interested to hear about cases where a PEP was treated unreasonably, where a PEP was refused a business relationship solely because they were identified as a PEP or where an individual was incorrectly classified as a PEP.

67. We do not have enough relevant information to answer this question. Question 58: Should the government explicitly include senior members of international sporting federations as a category of PEPs, along with their family members and known to be close associates? How many senior members (in line with the definition of senior management in Article 3(12) of the directive) of international sporting federations would you deal with, along with their family members and known to be close associates? Please provide a source for your estimation if this is not data that you already hold.

68. We do not have enough relevant information to answer this question. Question 59: How would you define an international sporting federation?

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69. NAEA would define an international sporting federation as a non-governmental organisation that is the administrator and standard setter in terms of performance, integrity, doping and transparency for a sport on the international stage.

Chapter 10 – beneficial ownership of legal entities Question 60: The government welcomes any views on the issues highlighted in Chapter 10 and the PSC regime in itself.

70. At point 10.8 on page 46 of the consultation document we would include the British Virgin Islands to the list of types of entity in the UK which might be viewed as coming within the scope of the requirements to register information on beneficial ownership.

Chapter 10 - requirements for trustees Question 61: How often should a trustee be required to update the beneficial ownership information that they hold?

71. A trustee should be required to update the beneficial ownership information that they

hold when there is a material change in circumstances be it name, location or

transaction. If no change in circumstance the information should be checked annually

and this could coincide with the requirement for trustees to self-assess under the

HMRC Self-Assessment tax reporting system.

Question 62: What other arrangements should the government consider as having a structure that is similar to express trusts?

72. We do not have enough relevant information to answer this question. Question 63: What other arrangements should the government not consider as having a structure that is similar to express trusts?

73. We do not have enough relevant information to answer this question. Question 64: Are there any further considerations that the government should take account of when developing the central register of trust beneficial ownership information?

74. We are pleased that the UK Government has decided to extend the public register of beneficial ownership to foreign companies purchasing property in the UK. However, we also believe that the Land Register must be able to distinguish between residential and commercial properties in order to make it easier for estate agents to verify and ascertain information on the seller as well as the buyer.

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Chapter 10 – trust beneficial ownership Question 65: The government welcomes your views on the approach to beneficial ownership information as set out above.

75. NAEA and ARLA welcome any measures that improve the transparency of Trusts. However, we do not think that a central register that is only open to Competent Authorities and Financial Intelligence Units (FIUs) would be beneficial to our members who are required to establish the beneficial ownership of a Trust that may be instructing them to sell or acquire a property. This issue would also affect the lettings sector as some agents particularly at the high end of the market deal frequently with properties held in Trust.

Chapter 10 – one-off company formation Question 66: The government welcomes your views on clarifying, through appropriate guidance, that a one-off company set up is a business relationship that has an element of duration.

76. We agree that further guidance is needed in this area because a business relationship can be formal or informal. In terms of the Money Laundering Regulations we would advocate that the guidance should say that regular one-off transactions would constitute a business relationship and therefore CDD should be carried out by the agent to determine, for example, the expected source of funds within the transaction. As outlined in our response to Questions 51 and 52 the guidance must provide links to where agents can find up-to-date information about risks and trends relating to money laundering.

Chapter 11 – data protection Question 67: The government would welcome your views on retaining documents necessary for the prevention of ML/TF for the additional 5 years. What do you think the advantages and disadvantages are of doing so?

77. We think that retaining documents necessary for the prevention of ML/FT for the additional five years could allow further investigations to take place. On the other hand it may mean that information is lost or misused.

Chapter 12 – supervision of regulated sectors Question 68: Do you think that where registration is a requirement, the supervisor should be given an express power to refuse to register or to cancel an existing registration?

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78. Yes we do think that where registration is a requirement, the supervisor should be given an express power to refuse to register or to cancel an existing registration.

Question 69: The government welcomes views on the reasons for a supervisor to refuse a registration or to cancel an existing registration. Are there any other reasons you think should be captured? Do you foresee any problems with the conditions identified?

79. We believe that a reason for a supervisor to refuse a registration or to cancel an existing registration should also include those agents with individual banning or warning orders by the National Trading Standards Estate Agency Team of Powys County Council who are the UK’s regulator under the Estate Agents Act 1979.11 The reasons for a supervisor to refuse a registration or to cancel an existing registration should also include the list of Banning Order Offences for letting agents due to be brought in under the Housing and Planning Act 2016.12

Question 70: The government welcomes views on whether a supervisor should have the power to add conditions to a registration or whether they should have the power to suspend an existing registration.

80. We think that supervisors should have the power to add conditions to registration or to suspend an existing registration.

Question 71: The government welcomes views on the test that should be applied by a supervisor when seeking to refuse to register, cancel an existing registration, add conditions to a registration or suspend an existing registration (see 12.8).

81. The test that should be applied by a supervisor when seeking to refuse to register, cancel an existing registration, add conditions to a registration or suspend an existing registration should be based on a minimum level. This will help to ensure that there is consistency across the board and both HMRC and self-regulatory bodies are working to the same standard.

Question 72: Where there is more than one supervisor, we welcome views on preventing the resubmission of an application for registration with another supervisor.

82. Where there is more than one supervisor we feel that an information requirement is needed. For instance, where agents have fallen out of membership of the self-regulatory body or have been thrown out, this information will need to be shared with HMRC and vice versa.

11 http://www.powys.gov.uk/en/licensing-trading-standards/national-estate-agency-standards/ 12 http://www.legislation.gov.uk/ukpga/2016/22/contents

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Chapter 12 – fit and proper test Question 73: Do you agree with the government’s approach to a "person who holds a management function" in paragraph 12.13 - namely those who make decisions about a significant part of the entity’s activities or the actual managing or organising of a significant part of those activities? Do you think it will encompass all individuals that should be subject to a fit and proper test?

83. We believe the government should focus on the position an individual holds in the agency rather than what they do. This needs to be defined role such as director, partner or sole trader. The use of a “person who holds a management function” is too loosely defined. It must be made clearer as to where responsibility lies.

Chapter 12 - extending fit and proper test to the Money Service Business (MSB) sector Question 74: Should the government extend the fit and proper test to agents of MSB’s? Please explain your response and provide credible, cogent and open-source evidence where possible.

84. It is not relevant for us to answer this question. Chapter 12 - criminality test Question 75: What are your views on the meaning of “criminals convicted in relevant areas”?

85. We agree with the meaning of “criminals convicted in relevant areas” as outlined at point 12.20 of the consultation document. However, we would like to see drug trafficking explicitly stated in the list as this relates to a cash based business and relevant to money laundering offences.

86. Furthermore, as stated in our answer to Question 69, “criminals convicted in relevant

areas” must be consistent with agents not deemed fit and proper as enforced by the National Trading Standards Estate Agency Team as well as those Banning Order Offences under the Housing and Planning Act 2016.

Question 76: What are your views on the meaning of “associates”?

87. We believe that the meaning of “associates” should be aligned with the directive’s definition of Politically Exposed Persons.

Question 77: Do you agree the criminality test should be extended to High Value Dealers?

88. Yes, we agree that the criminality test should be extended to High Value Dealers.

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Question 78: What are your views on spent convictions and cautions being taken into account for those new sectors in paragraph 12.18, in particular estate agents, lettings agents, accountants, and if there is to be an extension, HVD’s? How would the disclosure of spent convictions and cautions maintain public protection and mitigate risks to the public?

89. We don’t think that spent convictions and cautions should be extended to estate agents and letting agents. If the Order is to be extended it should be to the Principle, Partner or Director only.

Question 79: Are there any specific offences you consider relevant in relation to the risk of money laundering and terrorist financing?

90. Yes, there are specific offences that we consider relevant in relation to the risk of money laundering and terrorist financing. For instance, civil proceedings for fraud such as where an agent has misappropriated clients funds and the police have not always prosecuted. For example, the case of David Whitefield who was given a suspended prison term for stealing £123,000 from dozens of property landlords. During this time he put tenant’s rent and deposits in the company’s ‘working capital’ account.13 Or the case of Barinder Upal who was a letting agent who arranged viewings before taking cash or bank transfer deposits from students for property he knew he could not let. He was given a conditional discharge for a fraud in 2014 and made a total of £13,560 from his deception.14

Question 80: Should the government extend the criminality test to other entities covered by the directive? Please provide credible, cogent and open-source evidence to support your response.

91. Yes the government should extend the criminality test to other entities covered by the directive such as letting agents.

Question 81: Do you think that a transitional period is needed to complete the criminality tests?

92. Yes, we think that a transitional period is needed to complete the criminality tests.

13 http://www.stokesentinel.co.uk/fraudster-kept-123k-owed-landlords/story-29034542-detail/story.html#ixzz44l8fX8eS 14 http://www.coventrytelegraph.net/news/coventry-news/overseas-students-conned-out-thousands-

11289948

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Question 82: Do you think a transitional period of two years affords sufficient time to complete the criminality test on the appropriate existing persons who are already on the supervisors’ registers?

93. Yes we think a transitional period of two years affords sufficient time to complete the criminality test on the appropriate existing person who are already on the supervisors’ register.

Question 83: What are the expected transitioning and ongoing costs in your sector/business for applying a criminality test?

94. We know that members use the Disclosure and Barring Service who charge businesses £300 to register, which allows them so many users within an office. Charges include £26 per test or £44 for an enhanced test, which can take five to 10 days to process.15

Chapter 13 – administrative sanctions Question 84: What are your views on there being no upper limit on the imposition of an administrative pecuniary sanction?

95. We agree that there should be no upper limit on the administrative pecuniary sanction to be imposed following a breach of the provisions adopted. Furthermore, this should be dealt with by the relevant authority on a case-by-case basis.

Question 85: Should the government consider whether additional sanctions and measures should be made available to those set out in 14.4 and 14.5?

96. We do not have a view on whether additional sanctions and measures should be made available.

Chapter 13 – breaches of the Fund Transfer Regulations (FTR) Question 86: Do you agree that power to determine the measures and level of administrative sanctions related to breaches of the FTR should remain with the relevant supervisory authority?

97. It is not relevant for us to answer this question. Chapter 13 – further views

15 https://www.gov.uk/disclosure-barring-service-check/contact-disclosure-and-barring-service

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Question 87: Do have any further views not specifically requested through a question in this

consultation that would help the UK provide effective protection for the financial system?

Please provide credible, cogent and open-source evidence to support your views, where

appropriate.

98. NAEA and ARLA are on the whole supportive of the government’s views in the transposition of the Fourth Money Laundering Directive. We will continue to work with them to ensure that we help our members to comply with the rules.