Since the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017, there have been some concerns raised by members as to the role played by estate agents and solicitor estate agents with regard to customer due diligence, specifically provision of ID and source of funds.
Regulation 27 of the 2017 Regulations provides that solicitors and estate agents (and others) must apply customer due diligence when they establish a business relationship, and reg 4(3) states that for the purposes of these regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser’s offer is accepted by the seller.
How does this affect solicitors and their clients?
The new regulations give rise to the situation where estate agents are now required to complete customer due diligence for purchasers as well as sellers. This was not previously common practice.
This has given rise to an increased number of enquiries to the Professional Practice team from members querying their position when asked by estate agents to provide ID and source of funds for their client.
Solicitors carrying out estate agent work
If the estate agent you have submitted your offer to is a solicitor/estate agency firm, there is no requirement for you to submit your client’s ID to them. They can rely on the fact that you will have adequately identified your client as a fellow solicitor regulated by the Law Society of Scotland. The 2017 Regulations define estate agency work in terms of the Estate Agents Act 1979, which does not apply to our members, and as such it is our view that solicitors carrying out estate agency as part of their day-to-day business are exempt from the definition of “estate agents” in the 2017 Regulations and as such reg 4(3) does not apply.
Independent estate agency firm
The position here is different. The estate agent is required by reg 4(3) to complete customer due diligence on both the purchaser, where an offer is accepted, and the seller. While we appreciate that it is for the estate agent to complete this due diligence, we are being made aware of a practice emerging where some estate agents are contacting the purchaser’s solicitor direct to provide identification and in some circumstances proof of source of funds.
So, when acting for a purchaser, are you obliged to provide this to the estate agent? No, you are not under any duty to provide this. However, if such documentation is requested you should take your clients’ instructions as to whether they are content for this information to be passed on. We are aware that if you refuse to provide this, it may cause a delay with your client’s transaction while the estate agent obtains this ID direct from the purchaser. It may be that you wish to take your client’s instructions regarding provision of ID to the estate agent (if required) at the same time you take the instruction to offer. Alternatively, a paragraph into your terms of business stating that where an offer is accepted you will provide the estate agent with the ID would address this issue.
For the avoidance of doubt, the estate agent can contact your client direct as they are deemed to have a business relationship with them and they must comply with the regulation to apply customer due diligence.
In summary, while you are not obliged to provide this information to independent estate agents, it might be in your clients’ best interests to assist where possible in the provision of the documentation, or certainly to take their instructions on this issue at an early stage.Further information on the 2017 Regulations can be viewed on the Society’s website.
In this issue
- Borrowings, partner capital and profitability
- GDPR and the cloud
- Employment claims: is the flood still to come?
- Contributory fault: drivers, cyclists and pedestrians
- Reading for pleasure
- Opinion: Derek McCabe
- Book reviews
- Profile: Siobhan Kahmann
- President's column
- Application changes coming
- People on the move
- Seeking a better way
- Beyond borders
- Drawings and profitability
- Enforceable rights or progressive policy goals?
- Conflict theory: it works
- What the liquidators don't tell you
- The office on the move
- Please can we have some more?
- Health check for doctors' lines
- When creditors come first
- Keeping goods exclusive
- Tenant Farming Commissioner: the story so far
- HSE appeals: experts allowed in
- Scottish Solicitors' Discipline Tribunal
- Please don't stop the music
- Broadcasting's business end
- Public policy highlights
- Scam warnings escalate
- This time it's personal
- The game's not a bogey!
- "Only amateurs attack machines; professionals target people"
- When estate agents need client ID
- Banks, client accounts and the Money Laundering Regulations
- Third party rights: what now?
- Ask Ash