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Is it the last chance for agents to comply with mandatory client money protection legislation?

The deadline for client money protection legislation has been delayed twice in recent years, but with a hard deadline set for April 2021, could this be the last chance for agents to comply with client money protection legislation?


What exactly is client money protection?

Client money protection is basically a form of insurance that 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.


Client money protection also protects landlords’ and tenants’ money should the agent’s business experience any difficulties in the future.


All agents who handle client money in England must be a member of a client money protection scheme and display a certificate of membership in their office and on their website.


When was mandatory client money protection introduced?

All agents who manage property lettings in England have been required to belong to an approved client money protection scheme since it became mandatory in April 2019. The Government originally intended for the deadline to be April 2018, but had to put it back a year to 2019. However, because agents were having issues with pooled client accounts with banks, the Government gave agents a further 12 month grace period to comply with the requirement of keeping client money in a segregated client account. This meant that agents needed to have set up the necessary client accounts by April 2020 in order to maintain their membership of an approved scheme. But, due to issues setting up the pooled client accounts, the Government decided to amend the deadline and gave letting agents another year to comply, effectively pushing the deadline back to 1 April 2021. Find out more about the deadline extension.


However, last month Propertymark announced a breakthrough for agents, making it easier for them to open pooled client accounts with banks and comply with the client money protection regulations.


Do all agents need to have client money protection?

It has been a legal requirement for all letting agents and property management companies to have client money protection in place since 1 April 2019 in England. In Scotland, the legal requirement has been in force since January 2018 and in Wales since November 2015.  There are substantial penalties for non-compliance. 


Agents who are a member of a trade body or association such as ARLA Propertymark will already have client money protection in place as part of their membership cost or as a separate premium.


Agents who are not part of a trade body will need to take out client money protection themselves with a government authorised scheme such as Client Money Protect (CMP).


Do I need client money protection if I already have professional indemnity insurance?

There is often confusion about the difference between professional indemnity (PI) and client money protection. Agents need both types of cover to make sure that both their clients’ money is protected and their business is protected if it has to defend itself following a claim, or in some cases pay compensation to a third party. But how does PI differ from client money protection when it relates to monies held by the business? 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 it suffer financial loss due to actions which were unintentional.  PI is not designed to cover criminal acts and the assumption is that the business will continue to trade and service its clients.


Client money protection, on the other hand, protects the landlord or tenant (but not the letting agent) and reimburses them if the business fails due to the theft of client money by the owner or principal. The crucial difference here is that the business owners deliberately cause the business to become insolvent or to cease trading, with no intention to repay the clients.


What is Client Money Protect (CMP) and how much does it cost?

Client Money Protect (CMP), part of the Hamilton Fraser family, has been running the UK’s first voluntary client money protection scheme outside agent body organisations since 2014 and, as one of the largest schemes, protects the money of over 3500 agents.


Authorised by MHCLG (England), Scottish Executive (Scotland) & Rent Smart (Wales), CMP 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.


What are the legal requirements of Client Money Protect (CMP)?

As is the case with all the government approved schemes, there are certain legal requirements that members of Client Money Protect (CMP) must adhere to:


  • Members must hold clients’ money in a ring-fenced client money bank account from a UK bank that is authorised by the Financial Conduct Authority and Prudential Regulation Authority and is covered by the Financial Services Compensation Scheme
  • Members must provide three months' bank statements from their client account(s) showing all client money transactions for deposits and rents, unless they are a newly formed company. If this is the case they must provide evidence of a client bank account being opened
  • Members must provide evidence of membership of a tenancy deposit
    protection scheme such as mydeposits or a deposit replacement membership such as Ome, both part of the Hamilton Fraser family, including a summary of current live protections
  • Members must have professional indemnity insurance such as CMP Professional Indemnity
  • Members must belong to a recognised consumer redress scheme such as the Property Redress Scheme, part of the Hamilton Fraser family
  • Members must agree for us to display their membership details on our website
  • Members must agree to our terms of membership including the client money handling conditions
  • Members must clearly display the CMP logo prominently within every single one of their lettings branches and on their website
  • Members must provide their clients – both landlords and tenants - with comprehensive information about client money protection and their membership of our CMP scheme.


What are the penalties for failure to comply?

Failure to belong to a client money protection scheme can result in a fine of up to £30,000.


It is also a legal requirement for agents to clearly display which client money protection scheme they belong to. Failure to clearly display this information can result in a fine of up to £5,000.


In is your letting agent signed up to a client money protection scheme ? Hamilton Fraser highlights what can go wrong when a letting agent is not signed up to a client money protection scheme.


Find out more about how to join CMP and our current fee structure. Further information on the requirement to join a scheme is available on GOV.UK and advice is also available on the NTSELAT website.