Is your client account money safe?
Having seen letting agents and property managers understandably concerned about client money protection (CMP) following the high profile collapse of a national outsourced property management firm and some degree of U-turn by certain CMP providers, another potential issue has recently hit the headlines.
Two major international banks, Silicon Valley Bank and Credit Suisse have both recently collapsed although both have been bailed out by being acquired by HSBC and UBS respectively.
Will there be another such collapse around the corner and what could be the implications for agents if their chosen client account bank provider was to go under?
One key element is whether client funds are held in an Electronic Money Institution (EMI) regulated by the FCA or a Bank regulated by the Prudential Regulation Authority and part of the Financial Services Compensation Scheme (FSCS) EMIs were originally facilitated by the Treasury and the FCA who wanted FinTech businesses to create products and to service sectors that the banks didn’t want to support.
The key difference between an EMI and a bank is the fact that an EMI holds the funds and mirrors 102% of all the funds in an account directly with the Bank of England. This means that if an EMI were to fail, the agent would get 100% of client funds returned.
By comparison, if a bank were to fail, an agent could only claim back up to £85,000 using the FSCS scheme, the rest would be their responsibility.
An important word of warning though. Not all bank accounts offer FSCS protection, especially if they have been offered by an automated client accounting platform or a CASP (Client Accounting Service Provider).
This means that if the agent’s CASP or client accounting platform were to fail, all of the funds held could be lost. We recommend all agents that are unsure if their client bank account is covered by
FSCS to get in contact with their provider or ourselves and get confirmation that they are protected.
Over recent months, some traditional CMP schemes have turned away from the benefits and security EMI’s bring as they are focused on a definition of a bank in legislation that was written by
housing experts and not banking experts.
At Lettspay we believe there could be many reasons for this change of heart by CMP providers: commercial pressures; fear of change; but unfortunately, to date, there has been a lack of
willingness to listen and understand the security benefits EMI’s have on the protection of client funds.
The number one priority must be to ensure that agent’s client funds are in the safest location and that they benefit from the great automation LettsPay brings to the business.
Therefore, in order to maximise protection and satisfy all CMP schemes, LettsPay has introduced a new product which works with an agent’s client bank account. This ensures that agents will keep all of the automation benefits of LettsPay whilst also satisfying any CMP schemes new stance. It will also avoid the risk of an agent having their client account in a third party name and control. Lettspay ensure all the client accounts with banks are protected by FSCS, which means that if a bank were to fail the agent will get up to £85,000 of the funds although not the 100% provided by our current EMI.
Garrett Foxon
CEO Lettspay
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