Introduction

In the field of financial crime compliance, letting agents are currently required to comply with the Money Laundering Regulations¹ ("MLRs") when they carry out "letting agency work", defined by the MLRs as being:

• Things done in response to instructions received from a prospective landlord or a prospective tenant, and
• Where the letting of land is for a term of a month or more AND at a rent which during at least part of the term is, or is equivalent to, a monthly rent of €10,000 or more ("the Threshold Conditions")

In very brief summary, the MLRs require letting agents to have carried out a risk assessment, have in place policies, procedures and controls, appoint a nominated officer and comply with customer due diligence requirements for the purposes of complying with their obligations under the MLRs. Letting agents are also required to be registered with HMRC and their office holders approved by HMRC.

Customer due diligence requirements involve identifying the prospective landlord or prospective tenant and where they are corporate entities, verifying the company registration documents, the identity of the directors and the ultimate beneficial owner ("UBO"). In certain circumstances letting agents must carry out enhanced due diligence. 

The obligations on letting agents are onerous, require regular review and updating and a breach of the requirements can give rise to civil penalties and criminal liability, both for the firm and its directors. However, these obligations only apply to letting agreements which meet the Threshold Conditions.

The changes

Financial crime compliance obligations on letting agents will, from 14 May 2025, become more onerous due to changes, not of the MLRs, but of the scope and application of sanctions regulations.

Up to now, under sanctions regulations², only "relevant firms" bear a legal obligation to inform the Office of Financial Sanctions Implementation ("OFSI") if:

• They know, or have reasonable cause to suspect, that a person – (i) is a "designated person³", or (ii) has breached financial or trade sanctions or licensing requirements; and the information came to them in the course of carrying on its business.

Sanctions regulations define what a "relevant firm⁴" is. Up to now, letting agents have not fallen within the definition of "relevant firm". As from 14 May 2025, they will be added to the list of persons who fall to be defined as a "relevant firm" and the sanctions reporting obligations will apply.

Sanctions reporting obligations

A relevant firm is only required to make a report to OFSI if the information or other matter on which its knowledge or cause for suspicion is based came to it “in the course of carrying on its business.”

For letting agents, “in the course of carrying on its business” is defined as in the course of carrying out “letting agency work”.

The sanctions reporting obligations will apply in relation to letting agency work irrespective of the Threshold Conditions. Consequently, the sanctions reporting obligations apply to all letting agreements in which the letting agent is instructed by a prospective landlord or a prospective tenant irrespective of the length of the term or the amount of rent payable.

The reporting obligations apply to letting agents at different points during the retainer in relation to prospective landlords and prospective tenants:

• When a letting agent does work for a prospective landlord
  • the reporting obligations apply to the letting agent from the point that the prospective landlord instructs the letting agent. Consequently, as a letting agent, from the point at they are instructed by a prospective landlord, if they know or have reasonable cause to suspect that the prospective landlord is a designated person or has committed a breach of financial sanctions, the letting agent will be obliged to report this to OFSI.  
  • During the course of work done for a prospective landlord a letting agent is obliged to report to OFSI if they have knowledge or reasonable cause to suspect that a prospective tenant is a designated person or has breached financial sanctions at the point that a prospective tenant’s offer is accepted by the landlord.
  • A letting agent is also obliged to report in relation to a prospective tenant when the prospective landlord and tenant are “in the course of concluding an agreement for the letting of land for a term of a month or more”.

• When a letting agent does work for a prospective tenant, the reporting obligations apply from the point where the prospective tenant has found a prospective landlord, their offer has been accepted, and they are in the course of concluding an agreement. If at that stage the letting agent knows or has reasonable cause to suspect that the prospective tenant or the prospective landlord is a designated person or has committed a breach of financial sanctions legislation, they are obliged to report this to OFSI.

When making a sanctions report to OFSI, the letting agent must: 

• Explain/disclose the information on which the knowledge or suspicion is based
• Disclose any information they hold about the designated person so they can be identified
• If they know or have reasonable cause to suspect that the designated person is a customer, state the nature and amount or quantity of any funds or economic resources held by them for that customer.

Next steps

Letting agents do not need to change the way they approach their obligations under the MLRs but they do need to ensure that they build into their financial crime risk processes extra requirements to address the sanctions reporting obligations. Letting agents will need to have a system in place which:

• Enables them to carry out sanctions checks on prospective landlords and prospective tenants
• Know the process by which a sanctions report is made to OFSI
• Train relevant members of staff to deal with sanctions identification and reporting obligations

Letting agents may already have systems and controls in place that deal with sanctions risk. This may be the case where the letting agent is also an estate agent as the sanctions reporting requirements already apply to estate agents. In any event, these should be reviewed and updated to take into account the reporting requirements and the particular role of letting agents as distinct from estate agents. 

Our financial crime specialists can assist you in addressing all aspects of financial crime compliance.

[1] The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

[2] i.e. The Russia (Sanctions)(EU Exit) Regulations 2019

[3] A person who the UK government has named as being subject to financial sanctions restrictions

[4] See s.70/71 of The Russia (Sanctions)(EU Exit) Regulations 2019