With Lloyds Bank notifying clients that it will be closing undesignated client accounts, PayProp is advising letting agents to have a back-up ready.
The well-known and widely used bank recently contacted numerous agents, asking them to open separate client accounts for all of their individual landlords.
PayProp believes that this move to close undesignated client accounts could be the bank’s response to existing anti-money laundering legislation, set to be tightened in 2020.
It also acts as an extension of the legal requirement for agents to operate separate client money and business accounts, which has been in force since April this year.
Lloyds contacting agents over undesignated client accounts
It was discovered earlier this month that Lloyds Bank has been contacting letting agencies to notify them that undesignated client accounts will be closed, giving them 60 days’ notice.
Two options have been provided to its letting agent clients:
- Close undesignated client accounts and replace them with multiple designated client accounts, or
- Close their undesignated account and make ‘alternative banking arrangements’.
Neil Cobbold, Chief Operating Officer of PayProp UK, says: “This appears not to be an isolated incident as several agents claim to have been contacted by Lloyds. Therefore, all letting agencies need to be thinking about the way they will handle their client payments from now on.
“Those that bank with Lloyds must consider whether they want to open individual client accounts for each of their landlords or consider alternative options. Those who use other banks may have to prepare for similar action.”
An extension of Client Money Protection (CMP) rules?
It became a requirement earlier this year for agents to operate separate client money and business accounts, as well as joining a CMP scheme.
The rules require agencies to hold money in a client money account with a bank or building society authorised by the Financial Conduct Authority (FCA). They must also comply with written procedures for handling client money as well as keeping records and accounts that show all dealings with client money.
Cobbold says: “Agents may have thought that the introduction of mandatory CMP and the requirement for separate business and client bank accounts would be enough to ensure transparency and satisfy the banks.
“However, after review, Lloyds Bank appears to have decided that the best way to comply with anti-money laundering regulation is to mandate that any client money must be held in one account per landlord. This approach is likely to have been influenced by current and proposed legislation and could be followed by other banks soon.
“Whatever happens in the future, agencies must have the necessary procedures in place, with a clear audit trail and professional approach to record keeping.”
How can agents manage payments effectively?
With this news from Lloyds on plans to close undesignated client accounts, many agents may be wondering whether they should now consider opening accounts for each of their landlords. They may also be worrying about the prospect of additional banking fees and administration work.
Cobbold explains: “If the thought of opening and managing hundreds of separate client bank accounts is concerning agents, there is a range of things they can do to put their mind at ease.
“They could switch banks or explore PropTech options which could help them to manage their payments using automation.”
“The news from Lloyds should act as a warning for agencies, encouraging them to spring into action and get a plan in place, as this is an issue which is unlikely to go away and could escalate further in the coming months.”