Property auction leaders have warned that new money laundering rules could be “a nightmare” for the industry.
The Money Laundering Regulations 2017 require auctioneers to carry out more rigorous checks to verify the identity of buyers, as well as sellers, and to check the buyer’s source of funds.
Designed to manage the risk of money laundering and terrorist financing, the new regulations were implemented on 26 June, just four days after passing through parliament – giving auctioneers very little time to prepare.
Richard Auterac, chairman of the Royal Institution of Chartered Surveyors’ Real Estate Auction Group, said the government had given auction houses just one day to change vetting procedures to comply with the new regulations.
“RICS has made it clear this doesn’t make sense, and doesn’t help our business or our customers. It is much more onerous than getting someone’s passport and a utility bill. We also have to check sources of funds,” said Auterac, who is also chairman and auctioneer at Acuitus.
“If we don’t get this right it is going to be a nightmare,” he told a RICS property auction conference last week (28 June).
Currently, auction houses often only ask for a person’s ID once a bid has been accepted, although for online sales outside the room it is usually necessary to prove identity prior to bidding. Guidance from HMRC on how the regulations should work was published last week, replacing guidelines issued in 2014, and was introduced to meet EU Payments Regulations.
A Treasury spokesman said: “We had a legal duty to implement these new rules by 26 June. However, to give business as much time to prepare, we published a draft set of regulations in March as part of our consultation process. We also would expect supervisors to take into account the short lead-in time businesses have been given to implement these new rules when assessing non-compliance.”
Lambert Smith Hampton’s head of auctions Oliver Childs said: “It will take time to vet potential customers. The regulations take the checks that we are already doing to another level. So the audit trail just got deeper and the checks are tighter.
“If someone comes to an auction and bids on behalf of a client we have to carry out checks on all the parties.
“It is a slightly turbulent time while we understand and implement the changes. It is going to have an impact on the market with people saying ‘you know it’s me’, and they will find it intrusive. For six months it will seem like more bureaucracy, and then we will become accustomed to certain additional jobs,” he said.
“We have to take the positive out of this, and we will know a lot more about our customer base. We will be able to use that data to make customers aware of new opportunities.”
A spokesman for RICS said: “The new anti-money laundering regulations were brought in with less than a business day’s notice, giving businesses only one working day in which to update processes and procedures to meet the new requirements.
“Compounding the problem, the guidance to these regulations, produced by HMRC, was published after the regulations came into force, and before the consultation period had ended.
“Without reasonable time to update processes, or the clarity needed on how the new regulations should be implemented, businesses are at risk of
breaching their legal obligations, and legitimate property transactions are at risk of being jeopardised.”
Philip Eder, a consultant with law firm Howard Kennedy, said: “Before they receive money auctioneers need to know where the funds are coming from because it is a classic way of cleaning money.
“One has to be alert these days, especially with clients from abroad, where things are more lax,” he said.
Requirements for auctioneers and estate agencies
An auctioneer should carry out due diligence on a bidder before they receive a paddle, and on the buyer before the hammer falls.
Customer due diligence means:
■ identifying all sellers and all buyers and verifying their identity;
■ identifying all beneficial owners, where applicable, and verifying their identity;
■ obtaining information on the purpose and intended nature of the business relationship; and
■ conducting ongoing monitoring of the business relationship, to ensure transactions are consistent with what the business knows about the seller and buyer.
The type of information needed may include:
■ details of customer’s business or employment;
■ the source and origin of funds that your customer will be using in the relationship; and
■ copies of recent and current financial statements.
Records of these checks must be retained and updated when there are changes. Businesses should appoint a ‘nominated officer’ and make sure that employees know to report any suspicious activity to them, or a compliance officer if the business is larger or more complex