It is a legal requirement for letting agents to have client money protection (CMP), but it is still possible to fall foul of the legislation if you do not have a segregated client money account in place by 1 April 2021.
Apart from it being a requirement of the legislation, a segregated client account is an extremely important element of any business offering client services and should always be in place for any professional agent or property management company.
A segregated client account will mean that, should a business ever be liquidated, voluntarily or otherwise, the client monies they hold will not be considered, as it is not the business’s money.
From 1 April 2021, if agents do not hold client money in a segregated client account, they risk being thrown out of their current client money protection scheme, meaning they could be fined £30,000 for not having CMP.
When mandatory client money protection was introduced in April 2019, agents were given a 12-month grace period to comply with the requirement of keeping the money in a segregated account.
However, in February 2020, agents were given another year to comply due to difficulties they were experiencing when trying to open client accounts with some UK banks and building societies.
Following lobbying from Propertymark, the trade body announced in September 2020 that agents should no longer have issues when opening pooled client accounts, making it easier to comply with the client money protection regulations.
Therefore, the 1 April 2021 deadline remains in place for agents to comply.
Client money protection protects the money of landlords and tenants against theft or misappropriation by a letting agent. This could include tenants’ deposits and landlords’ rental payments, maintenance funds or any other money held by the agent in relation to a property.
All agents who handle client money in England, Wales and Scotland must be a member of a client money protection scheme and display a certificate of membership in their office and on their website.
In short, the answer is yes. There is often confusion about the difference between professional indemnity (PI) and client money protection. Agents need PI insurance to make sure that they have protected their own business interests while client money protection protects their clients’ money. For a full explanation, read our article, Understanding the difference between professional indemnity insurance and client money protection.
The key distinction is that PI policies are designed to recompense the agent (policyholder) should they suffer financial loss due to actions which were unintentional.
Client money protection, on the other hand, does what it says on the tin, it is there to protect the landlord or tenant (but not the letting agent) and reimburses them if the business fails or their money is misappropriated by the agent.
Client Money Protect (CMP) is authorised by MHCLG (England), Scottish Executive (Scotland) & Rent Smart (Wales) and offers a simple way for agents to get client money protection without having to join a trade body – it is an independent membership body that provides full protection to its members, with no individual claim limits. CMP insures its liability against the payment of any claims. Prices start from £425 +VAT. Find out more here.