Calls made for industry-wide code of practice on new anti-money laundering regulations

Keith Dinsmore, director at legal services firm Vialex, has called for an industry-wide code of practice to avoid increased costs and delays following the latest EU crackdown on money laundering.

The 4th anti-money laundering (AML) directive became law in the UK in June. With the property sector often targeted by criminals, and billions of pounds passing through land and property transactions every year, the directive provides a more stringent framework that estate agency businesses must now adhere to.

While Mr Dinsmore doesn’t believe that the regulations should be too much trouble for anyone compliant with the previous legislation, he has highlighted one “stand-out change” which he feels will have a “material impact on the way in which every transaction is handled”. This change requires estate agents not only to carry out customer due diligence on their own clients, but also on the other party in the transaction.

Commenting on the change, Mr Dinsmore said: “The buyer’s agent will have to identify the seller and vice versa. This is a unique demand made of estate agency businesses. For example, lawyers acting in property transactions are not under the same obligation. No guidance has been issued as to when the counter-party due diligence requires to be carried out. This is unhelpful.”

It is assumed that full due diligence on both parties must be done before a legally-binding contract is entered into. However, in many situations, including competitive bids, the identity of the counter-party may not be known until nearer exchange. This could lead to delays as estate agents attempt to meet the demands of the directive and ensure compliance.

In response, Mr Dinsmore is arguing that an industry-wide code of practice, supported by HMRC, to which all firms adhere to, is now needed. He also recommends a fast-track solution which entitles an agent to rely on confirmation provided by the counter-party’s agent, stating that all appropriate checks have been carried out and that they are satisfied as to the source of funds. Mr Dinsmore has also highlighted further issues with the directive which need clarification. For example, the extent of responsibility for each agent in a joint agency agreement.

To ensure a logical path through these challenges is found and to avoid unnecessary costs and delays, Mr Dinsmore is calling for a collaborative approach to drawing up definitive guidance with input from both HMRC and RICS.

The latest money laundering directive was enacted with just a single working day before coming into force. This left those regulated by the 3rd Anti-Money Laundering Directive with very little time to ensure compliance. As a result, there has been an unofficial grace period to ensure that all firms review their existing procedures and controls, and update them where necessary. However, this extension is now at an end, and anyone involved in the buying or selling of land should now have put the mandatory legal requirements in place and have implemented (or be planning to implement) refresher training.

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