Keeping the Shine on Super Prime – Enhanced Due Diligence: A Guide for Estate Agents in the UK

Keeping the Shine on Super Prime – Enhanced Due Diligence: A Guide for Estate Agents in the UK

Written by Stephen Williamson, Senior AML Consultant, FCS Compliance

There has long been a fascination with the buying and selling of properties at the very top end of the market.  The  term super prime has become synonymous with the most expensive of properties bought by the most wealthy of purchasers.  There are even TV shows that feed our curiosity and provide us with a glimpse into the rarified world of the agents behind these deals.

But while our focus is inevitably on the price tag and the people at the heart of the deal, it is worth mentioning the work of the compliance teams who behind the scenes are responsible for ensuring that these sales go through smoothly.

As an estate agent navigating the prestigious and competitive super prime market, you’re not only a facilitator of transactions but also a crucial player in ensuring the integrity of the financial system. There is a prevalence of money laundering activity at this end of the market which means understanding and implementing Enhanced Due Diligence (EDD) has never been more critical.

This article aims to demystify EDD, outline when it’s applicable, and provide guidance based on the UK’s money laundering regulations and HMRC advice for estate agents and letting agencies.

Super Prime Definition

While we may conjure up images of penthouse apartments in Mayfair, or houses surrounding Holland Park, there is no set definition of super-prime.  HMRC guidance says that what a business identifies as super prime should be reflective of an area and the competitiveness of the market in that area.

To put it simply super prime usually constitutes the top 5% of the local market values.  So, in actual fact you could be dealing with a super prime property at much lower levels than you might expect and EDD could be applicable.

What is Enhanced Due Diligence?

EDD is a set of additional checks and measures that go beyond standard due diligence.  It is designed to provide a deeper level of scrutiny on clients and transactions that are deemed higher risk.

One of the main ways in which EDD differs from standard due diligence is that as well as collecting source of funds information – which refer to the funds that are to be used specifically for the transaction –  they go one step further by collecting and recording the source of wealth which refers to the origin of a client’s overall wealth (ie their total assets).  Effectively this gives greater clarity and understanding of how that client came to be in the financial position they are in today.

The primary goal of EDD is to scrutinise the transaction to a sufficiently robust level to prevent money laundering and terrorist financing which can be more prevalent in instances where EDD is applicable.

When is Enhanced Due Diligence Required?

According to the UK Money Laundering Regulations 2017, EDD is required in several scenarios where there is a higher risk of money laundering or terrorist financing.  These scenarios include:

• High-Risk Jurisdictions: Transactions involving individuals or entities from countries identified as high-risk by the Financial Action Task Force (FATF) or the UK government.
• Politically Exposed Persons (PEPs): Clients who are PEPs or have close ties to PEPs. PEPs are individuals who hold or have held prominent public functions, such as government officials, senior executives of state-owned enterprises, or political party officials.
• Complex or Unusual Transactions: Transactions that are unusually large, complex, or don’t seem to have a clear economic or legal purpose.
• Correspondent Relationships: When dealing with clients that are financial institutions, especially those from non-EEA states, enhanced scrutiny is required.
• Other High-Risk Situations: Any situation that the estate agent deems to pose a higher risk, based on their own risk assessment processes.

How to Implement Enhanced Due Diligence

Implementing EDD involves several key steps, all of which should be ingrained in daily operations:

• Gather Additional Information: This could include obtaining further details about the client’s source of funds, the purpose of the transaction, and their business relationships.
• Increased Monitoring: Continuously monitor the business relationship and scrutinise transactions to ensure they are consistent with the client’s profile and the nature of the business relationship.
• Senior Management Approval: Obtain approval from senior management for establishing or continuing business relationships with high-risk clients.
• Enhanced Verification: Verify the identity of the client and, where applicable, the beneficial owner using more rigorous verification measures.

In short, Enhanced Due Diligence is not just a regulatory requirement but a crucial aspect of responsible estate agency practice. By understanding when and how to apply EDD, you safeguard your business, protect the property market from illicit activities, and contribute to the overall effort of combating financial crime.

Stay informed, stay diligent, and remember that a robust approach to EDD can enhance your reputation and trustworthiness in the eyes of clients and regulators alike. For detailed guidance, always refer to the UK Money Laundering Regulations and HMRC’s specific advice for estate agents and letting agencies.

By embracing these practices, you’re not only complying with the law but also championing the integrity of the property market.

Article written: June 2024