How will agents comply with Client Money Protection law after government moves goalposts?


Letting agents might not be able to comply with statutory requirements to offer Client Money Protection - because the insurance won't be available.

No insurer will be in the market after the Government said there would be no limit on liability.

The issue potentially causes huge problems for larger letting agents in particular, with ARLA warning that such firms will be put out of business because of the enormous risks they carry, and which no insurer will cover.

ARLA warned that it may have to shut down its own CMP offering.

As things stand, all letting agents must offer CMP from next year.

David Cox, head of ARLA, last night told us: "What has been really simple for years became very complicated when the regulations were laid and I have been working for the last six months to try and fix it.

"The CMP regulations require that an agent's CMP scheme must cover, at minimum, the maximum amount in their client account and that in the event of a claim, the CMP scheme must pay out 'without any deduction' (up to and including the collapse of the scheme and bankruptcy of the company).

"Until October 16, Propertymark had been operating under the impression that the cover could be made up from a combination of the Tenancy Deposit Protection schemes covering all protected deposits and the CMP scheme covering everything else.

"This basis was agreed with officials at MHCLG on August 14, and we subsequently submitted our application for approval to MHCLG on this basis on September 12.

"On October 16, I was informed by MHCLG that they now expect us to also cover protected deposits.

"This represents double insurance of the deposits (coverage by both TDP and CMP schemes) which is a probable breach of FCA rules.

"In addition to the 3,000 member firms with less that £1m in their client accounts, Propertymark has a little over 200 member firms with more than that amount. Those 200 member firms have a combined total of £889m in client funds with £500m of that coming from the top 16 businesses.

"To be able to pay out without any deduction, Propertymark would be required to increase its insurance cover from the £5m it has in 2018 to over £200m, a 4000% increase.

"There is simply not enough capacity in the insurance market to achieve the cover."

Cox said: "The impact will be that the large business will not be able to obtain CMP cover and will be forced to either cease trading or operate unlawfully."

Mandatory CMP is likely to come in ahead of the fees ban - which some market commentators believe will not now be implemented until October next year, to allow six months for CMP to bed in.

The Government has already said that should letting agents go out of business because of loss of revenue caused by the ban, mandatory CMP needs to be implemented first in order to provide recompense to landlords and tenants.

On Monday, Baroness Hayter said in a debate in the Lords that the Government had upped the coverage needed for CMP providers to £200m with no cap on liabilities.

She also said in the debate that this excluded RICS and Propertymark "as their limit is £5m".

Last night she clarified to EYE that this is the current requirement.

She told us: "The Government is proposing that all CMP schemes would have to increase their cover to £200m and with no upper limit at all on liability.

"This would affect all CMP schemes who would have to insure for all money held by all their agents. It's just that RICS and ARLA happen to cover the very big agencies, and thus would have to increase their cover in line to the rents held by the big boys."

Cox confirmed: "I thank Baroness Hayter for raising this matter in the House of Lords.

"The Government has recently moved the goalposts on mandatory Client Money Protection and some of the requirements they are now placing on the CMP schemes are simply impossible to achieve.

"However, we are working with MHCLG officials, the Minister and Baroness Hayter to find a route forward and hope that there will be a solution very shortly."