- February 1, 2023
- Posted by: FCS Compliance
- Category: Blog, News
By Caroline Walters – Senior AML Consultant, FCS Compliance
Top 5 Most Frequently Asked Questions – Property Market
Anti-money laundering (AML) expert Caroline Walters answers the top five most frequently asked questions put to FCS Compliance in 2022 for the property market:
1 What is needed to prove source of funds?
With regards to proof of funding, HMRC will expect you to have not only sought confirmation from the client as to how funding will be achieved, but they will also expect you to have on file copies of any bank statements/mortgage offers/proof of equity that may form part of the transaction. To that end, you should explain to the client that under The Money Laundering Regulations Act of 2017, there is a legal requirement for you to seek copies of all documentation that forms part of the source of funding.
If part of the source of funds consists of a gift from family members then supporting documentation should also be obtained, together with identification documents for the person gifting.
We recognise that clients may be reluctant to provide copies of financial information or bank statements, but if these form part of the source of funds, they need to be aware that it is a legal requirement.
In terms of lettings, in a scenario where a client signs a 12-month rental agreement, it is not necessary for them to provide evidence that they have 12 months’ worth of rent available at the start of the tenancy. However, there is a requirement for you to ascertain how the rental funding will be achieved and to ensure that the source of the funding does not deviate during the duration of the tenancy.
In other words, if the client is ABC Ltd then you should ensure that the funding is always provided by ABC Ltd during the tenancy duration and does not change to XYZ Ltd six months into the tenancy. If it does you will need to conduct due diligence on XYZ Ltd.
There is a common misconception that because the solicitor handles the transfer of the monies that the agent does not need to look at this area, but HMRC will expect the agent to have identified the source of funding and sought appropriate documentation as part of the due diligence process.
If there are reasons to complete enhanced due diligence, then you should in addition to the above, request the source of wealth as well.
2 Do we need to risk rate each customer due diligence file?
A risk assessment is an internal form which needs to be completed on each file. Your Policies and Procedures document should stipulate that this is essential for every property transaction.
If HMRC inspected your business they would expect to see a Risk Assessment and to see the level of risk that was applied to the file after completion of all relevant checks ie low, medium or high.
For each level of risk, you should justify why it has been rated at that level. The risk will also determine the type of customer due diligence (CDD) applied ie simplified, standard or enhanced.
For example, for a medium or high-risk file, your internal procedures will most likely state that the final decision lies with the money laundering reporting officer (MLRO) and that enhanced due diligence applies.
If you were to risk assess someone as high you would then need to decide yourself if you wanted to deal with that person and if it was applicable to submit a suspicious activity report (SAR) or seek a defence against money laundering (DAML) decision [is report the right word?!] from the National Crime Agency (NCA).
3 What is an acceptable document for proof of address?
You cannot use one form of identification for both name and address. We recommend requesting one of the following if it’s in addition to a passport and not more than three months old: a utility bill, council tax bill, bank or building society statement, mortgage statement, tax demand, or a driving licence (provisional is not acceptable). Although it’s worth noting that a driving licence cannot be used for identification and proof of address.
It is fairly common for clients to provide doctor’s letters, credit card statements and mobile phone bills, but none of these constitutes an acceptable proof of address.
The above are normally requested in addition to online verification checks and provide an additional layer of proof to your client’s identity. However, the documents can be used without the additional layer of online verification.
4 What documents are required for a deceased vendor?
If the Land Registry document has only one owner and they are deceased you will need a copy of the death certificate and a copy of the deceased person’s will.
The will identifies the executors and this is who you should complete the due diligence on. If any one of the executors is a solicitor or accountant ie from a regulated sector then you will be able to complete simplified due diligence on them by checking the solicitors/accountants register to ensure they are both registered and regulated.
If the Land Registry document identifies persons in addition to the deceased person then you will need to complete CDD on the additional persons and follow the same procedure as mentioned above for the deceased person.
You can also use the Grant of Probate to identify the executor of the estate however, it can take quite a time to obtain a Grant of Probate therefore the will and death certificate will suffice.
5 What AML requirements are there for companies?
In the first instance, you need the following company documents and you will need to request the most up-to-date share register to see where the ultimate beneficial ownership (UBO) lies.
The UBO may not necessarily be the directors of the company. If the beneficial owner of the company is another company, you will need all of the company records as shown below for every organisation that forms part of the company structure.
• Certificate of Incorporation
• Memorandum & Articles of Association
• Copy of current share register/register of members
• Confirmation of registered office and trading address (if different)
• List of directors
In addition to the above, you will also need documentation for the UBO who is the main shareholder which you should find from the share register/register of member’s document.
A UBO is any shareholder that has more than 25% of the shares in the company. If no person holds more than 25% shares in the company then there will be a person with significant control (PSC) this will be available to see on the PSC register at Companies House and customer due diligence checks will therefore apply to the PSC.
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