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Mandatory Client Money Protection: An update

Posted on 2016-09-30

Client Money Protection (CMP), the initiative which safeguards landlords and tenants' funds held by letting agents, remains a voluntary choice for letting agents, despite years of campaigning by a number of industry bodies.

Back in April, though, the Government made a series of amendments to its Housing & Planning Bill which marked a step closer to introducing mandatory CMP.

At the time, John Midgley, the chair of SAFEagent – the kite-mark scheme which denotes firms that protect clients' money – said that while we're getting closer to mandatory CMP, 'we're not there yet'.

Since these developments, however, significant progress has been made...

Government consultation launched

On August 22, the Department for Communities and Local Government (DCLG) launched an official review and consultation into Client Money Protection.

The review was prefaced by an open letter jointly penned by Housing Minister Gavin Barwell, Baroness Hayter and Lord Palmer. The six-week consultation period was launched instantly and closes on October 3.

The DCLG states that it will work with members of the House of Lords to form a 'working group' which will preside over the consultation responses and decide whether mandatory CMP should be introduced as per the changes in the Housing and Planning Act which were rubber stamped in April.

The consultation calls for all responses regarding CMP, but asks for a particular focus on a set of 17 questions which could be answered by letting agents, landlords, tenants or any other parties with an interest in the lettings sector.

The questions cover the issue of how many claims are made on CMP schemes, whether an agent's membership of a CMP scheme influences landlords or tenants and what services letting agents receive from being a member of a CMP scheme.

You can see the full set of questions here.

Who is supporting the review into mandatory CMP?

As you might expect, SAFEagent has thrown its full weight behind the consultation as well as several other letting industry bodies. Here's a snippet of what some of them had to say:

SAFEagent: “Quite simply, the industry wants it, and all members of licensing, professional and trade bodies already have it. Cost is not an issue here. [The] Government should recognise that the cost of CMP is a small price to pay by an agent who genuinely wants to protect their clients and consumers."

Residential Landlords Association: “It is ironic that estate agents are legally required to be registered yet don’t handle money, yet agents handling tenant and landlord money are at present free to do what they like. We believe CMP schemes are an essential measure.”

National Approved Letting Scheme: “NALS will be responding fully to the consultation to inform the argument that all agents should be covered by CMP, and we urge others to do so too. We hope this review will finally lead to mandatory CMP for all letting agents.”

Association of Residential Letting Agents: “We’ve been calling for the launch of this review for some time so we are very pleased that it has now been announced. It’s really important [that] the wider industry come[s] together as one clear, loud voice to call for full, mandatory CMP through this consultation.”

What are the potential objections?

Although agents and lettings industry figures are now getting the chance to put forward their thoughts on compulsory CMP, the DCLG does raise some of its own concerns.

The open letter states that the Government's predominant concern is making the 'vast majority' of 'honest' agents pay for insurance against themselves being fraudulent.

It goes on to say that the other reason that agents' clients could lose their money is due to bankruptcy.

However, it argues that letting agents don't need to be part of a CMP scheme in order to make sure this money is paid back to landlords and tenants.

It says that all they need to do is make sure the money is held in registered client accounts and that it is agreed in advance with the bank that in the event the firm does go under, it is protected and returned to the client instead of being used to pay off the agent's debts.

The DCLG is therefore suggesting that because of these factors, compulsory CMP may not be necessary. The document also mentions that if all agents have to pay to join a CMP scheme, it could 'result in higher rents for tenants'.

The documentation quotes 'industry estimates' that the UK's letting agents hold around £2.7 billion of client funds.

It also says that an agent's typical annual membership fee for a CMP scheme is £300-£500 and that around 60%-80% of agents are currently voluntarily offering CMP.

What can you do?

Letting agents can respond to the consultation any time before Monday October 3.

There is an online survey or written responses can be emailed to

Participants will also need to indicate whether they would be happy to meet with the CMP working group in the future.

The Government's doubts outlined above show why it's so important for as many letting agents as possible to respond to the consultation and explain why they feel mandatory CMP is necessary.

This is the closest the industry has ever come to securing mandatory CMP and if the consultation period is successful in convincing the Government to introduce it as an industry-wide requirement, it will be seen as a huge victory for honest, hard-working letting agents.

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