The lettings industry is set to face significant changes to its financial sanctions legislation. From 14 May 2025, letting agents will be classified as 'relevant firms', introducing new compliance obligations to prevent economic crime. These changes will shake up the sector, so every property agent needs to know what to expect.
What is changing about financial sanctions?
The lettings industry is catching up with other sectors that are already required to conduct financial sanctions checks as part of anti-financial crime measures. This will mean better oversight of rental agreements for everyone involved.
Letting agents must determine if prospective landlords or tenants are on the UK Sanctions List. Agencies must also make themselves aware of who is on the list, as they cannot enter into a contract with anyone on it. The list's members are a matter of public record and include both people and entities. This has to be checked before entering into a rental agreement.
Suspected individuals found on the list must be reported to the Office of Financial Sanctions Implementation (OFSI). Meanwhile, any financial assets or resources held for the persons involved must be identified and reported. This will ensure compliance with the sanctions.
When does it apply?
This legislation applies after a prospective landlord formally instructs a letting agent. However, in the case of tenant representation, it applies after an offer is accepted and the agreement is in progress.
What are the penalties for non-compliance?
There are significant penalties for non-compliance, which include financial and legal consequences.
These are:
- Monetary fines. This will be the greater of £1m or 50% of the estimated breach value. Directors or managers could also be individually fined if breaches occur due to their consent or neglect.
- Criminal prosecution. An individual could face up to seven years in prison for serious offences.
- The OFSI has said it may publicise non-compliance in cases of public disclosure of breaches.
How to avoid penalties
Letting agencies don't want to risk fines and more serious penalties. Here are some tips for avoiding these:
Make staff aware of any changes
They should be the first to know about any upcoming reforms so the team can work effectively together and stay one step ahead. Employees should be aware of their responsibilities regarding compliance because otherwise, they could face problems down the road.
Further, staff should be fully aware of the implemented policies that exist in their agency. They should know exactly what their company's procedure is in dealing with designated individuals. This will most likely involve reporting any suspicious activity immediately and following guidelines for managing these breaches.
The OFSI recommends contacting its office and reporting the breach as soon as possible, providing all relevant details. This includes suspending any further transactions with the sanctioned individual or entity, and taking steps to freeze any related assets while investigating further.
Stay ahead of the curve
Once the whole team is up to date, it's imperative to always check for further changes to legislation because this will continually evolve. Not doing this could risk the letting agency falling into non-compliance. Checking OFSI would be the first port of call when looking for updates.
Screening and record-keeping
Due diligence should be at the forefront of any letting agent’s mind during this process. Detailed records should be compiled and kept up to date with all the information needed. As part of this, establish a clear process for verifying the identity and background of landlords and tenants.
It may also be useful to create a screening process. Letting agents can refer to the UK Sanctions List as a resource to verify landlords and tenants.
Final thoughts
The impending changes to financial sanctions legislation pose a significant shift for the lettings industry. They demand proactive and comprehensive compliance measures. The introduction of 'relevant firm' status for letting agents necessitates an understanding of sanctions checks, reporting obligations, and the severe penalties associated with non-compliance.
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