Customers’ money and the regulations that govern it are changing…
I was recently invited to Second Annual National Local Government Event of the Institute of Government and Public Policy to give a lecture on “The Past, Present and Future of Customer Money in the Private Rental Sector”.
With the reform of the PRS being a priority for the government, we believe it is important that lawmakers take into account the objectives of regulating customer money, that future rules focus on risk control rather than simple compliance, and that we keep an eye on the future of real estate payments.
Let’s look at a number of hot topics.
Eradicate money laundering
The Government’s objective in implementing the European Anti-Money Laundering (AML) Directives and the Proceeds of Crime Act was to engage the private sector to better manage and help control the risk of financial crime . For estate agents, the requirement was to register a money laundering reporting agent and report to HMRC any one-time payments over €10,000. However, a risk-based approach to the issue of financial crime has serious shortcomings in this regard. For example, if an agent is paying €9,000 in rent for 20 properties, no enhanced due diligence is legally required. This may be one of the reasons the government is currently consulting on this issue, as they want our industry to better manage this risk and ensure that the SRP is not a haven for the proceeds of crime. .
A consultative approach is welcome, as we have seen when such an approach is not followed. A recent example was the introduction of customer money protection in the UK. After the introduction of the policy, it had to be delayed as agencies were seen as an insurance risk by providers and therefore unable to obtain the required cover, even when fully complying with the law. Also, many agencies that thought they were handling client accounts actually held normal commercial checking accounts, which meant that any system for protecting client money would have been invalid.
By consulting on any new AML law, the government can help avoid a repeat of the problems the industry faces with the introduction of customer money protection and ensure a fair, balanced and transparent regulatory environment.
A regulated industry?
While successive Westminster governments have continued to regulate customer money and PRS, they have yet to license practitioners. The recent RoPA report shows that the government is moving towards this, but progress has been slow.
On the other hand, it means there is more time for those working in the industry to present their case to government – something PayProp does and encourages our peers to do. As most UK agents work in small and medium-sized businesses, the industry needs to advocate for streamlining and avoiding even more onerous administration, as businesses will not be able to absorb the cost of compliance. Instead, the government should consider embracing the efficiency and reliability of technology-driven compliance when it introduces the white paper on tenancy reform.
Our latest Rental Confidence Index already shows widespread adoption of PropTech by agencies, with nearly 60% of respondents increasing automation in their business in 2021 and 67.8% believing automation will improve rather than detract. threaten their jobs over the next five years.
But what about the future? Through what channels will tenants pay their rent as the industry progresses, and what can lawmakers do now to create a framework fit for the future?
First of all, it is useful to consider the people who will be renting and their attitude towards finances. According to a June 2021 report, 45% of 18-29 year olds looking for new investments are putting their money into cryptocurrencies instead of more traditional investments. This interest in cryptocurrencies comes against a backdrop of governments and central banks increasing the money supply in the economy at double-digit rates that some estimates could devalue currencies and contribute to current rates. high inflation. We can expect cryptocurrencies to become more mainstream as investors seek higher yields, putting more pressure on the industry to accept it.
While some may view cryptocurrencies as investments, others will want to use them as a medium of exchange to purchase goods and services. And indeed, the first real estate purchase using cryptocurrency has already taken place. That being said, rental agents will need to consider the risks and rewards of accepting cryptocurrency payments.
This also poses problems for the government. How to regulate or tax a decentralized financial system? Again, technology has a crucial role to play if we are to simplify the future administrative burden for agents, tenants and landlords.
In summary: Industry consultation is essential
No matter what the future of customer money holds for the PRS, it is important that the government focuses not only on protecting tenants, but also those who work in the sector. By learning from the experience of agents, taking stock of the systems they use, and incorporating modern technological capabilities into practical solutions, government can help build trust between landlords, tenants and tenants. officers.
*Neil Cobbold is the Managing Director of PayProp