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What is today's blog about?
This week, we take a look at the new RICS Professional Statement, Client Money Handling (1st Edition, October 2019). You can download a full copy on the RICS website.
This stems from Rule 8 of the Rules of Conduct for Firms, which state that a ‘firm shall preserve the security of clients’ money entrusted to its care in the course of its practice or business’.
The new Professional Statement should be read in tandem with the April 2019 Scheme Rules for the RICS Client Money Protection Schemes for Surveying Services and Property Agents, both of which have a narrower scope than the new Professional Statement. These can be downloaded from the RICS website.
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What are the Scheme Rules?
The new Scheme Rules became effective from 1 April 2019, entitled Client Money Protection.
They are split into three categories:
RICS Client Money Protection Schemes for Surveying Services - relating to client money held by RICS-regulated firms
RICS Client Money Protection Schemes for Property Agents - relating to client money held in connection with residential letting agency work and property management work in England. These comply with the Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018
TDS Deposits - relating to tenancy deposits protected by the Dispute Service Limited (TDS) or TDS Northern Ireland (TDSNI)
The current compensation limit is £50,000 per claim, which must be made within 12 months of a loss occurring.
Firms who hold clients’ money pay an annual regulatory review fee, depending on the number of directors or principals the firm has.
What does the new Professional Statement cover?
Introduction explaining the objectives and application of the Professional Statement
Mandatory requirements
Best practice guidance
When does it apply from?
1 January 2020.
What is client money defined as?
Client money is defined as any cash, cheque, draft or electronic transfer which a ‘RICS-regulated firm holds for or receives on behalf of another person, including money held by a regulated firm as stakeholder and is not immediately due and payable on demand to the RICS-regulated firm for its own account’.
This excludes ‘fees paid in advance for professional work agreed to be performed, and clearly identifiable as such, unless the fees are for work undertaken as a property agent as defined by the Rules of the RICS Client Money Protection Scheme for Property Agents’.
Examples of client money include:
Payment on account of general costs
Rent
Service charges
Interest credited to a client account
Arbitration fees
Client money held but due to be paid to contractors
This is different to office money, which includes:
Interest on general client accounts which the client agrees will not accrue to them
Fees
Disbursements
Money paid in advance in respect of an agreed fee for surveying services, but not property agent work in England
What are the objectives of the Professional Statement?
To keep client money safe
To ensure client money is used only for appropriate purposes
To ensure RICS-regulated firms have appropriate controls and procedures in place to safeguard client money
Who does the Professional Statement apply to?
All RICS members and RICS-regulated firms operating in the UK.
What are the mandatory requirements?
When holding client money, RICS-regulated firms must:
Hold all client money in an exclusively controlled client money account
Ensure that the account only contains client money paid into it, including any sums paid in to replace money withdrawn in error (plus accrued interest)
Not hold office money in a client money account unless it is a receipt of mixed monies where the office money is awaiting transfer
Ensure that the account name includes the word ‘client’ and the name of the firm, in addition to discrete client money accounts including an identifier such as the client or property name
Confirm the bank operating conditions in writing, including confirmation that the bank will not set-off or counterclaim against the client money account for any sum owed to it by another account held by the firm
RICS-regulated firms must confirm the following in writing to clients:
Account details
That any fees paid in advance for surveying services (but not property agent services in England) will not be covered by the Client Money Protection scheme
Disclosure of any commission earned whilst a property is managed
How unidentified funds are dealt with
Copy of written procedures for handling client money
When client money is received, RICS-regulated firms must ensure that:
It is paid in to a client money account promptly
If mixed monies are received, they must be paid into a client money account and then office money transferred out promptly
Account for interest or other benefits, unless agreed in writing with the client
Unidentified funds are promptly identified. If the owner is not identified within 3 years then they must be paid to a registered charity
For payments out of a client account, RICS-regulated firms must:
Use the money only for the client’s matters and with the client’s written consent
Ensure that client money is returned as soon as there is no longer a need for it to be retained
Send an invoice for any fees due and payable, unless the client has given written consent for deduction without prior notification
Ensure that sufficient funds are held before payments are made
Obtain written consent for any direct debits, standing orders or bank charges
RICS-regulated firms must keep accurate accounting records and have appropriate systems, procedures and controls in place, for example:
Undertaking regular reconciliations, reviewed by a principal or senior staff member
Publishing written procedures for handling client money on the firm’s website, with a copy provided free of charge
Avoiding overdrawn balancesEnsuring electronic data security and disaster recovery
Complying with the latest RICS Professional Statement, Countering bribery and corruption, money laundering and terrorist financing
Ensuring breaches are investigated, recorded and remedied promptly
Informing the RICS, client and insurers immediately if any client monies are misappropriated
RICS members also have duties for client money protection, including compliance with RICS Professional Statement, Countering bribery and corruption, money laundering and terrorist financing and anti-money laundering regulations, complying with firm-wide procedures, not overriding any controls in place and making appropriate disclosures if any issues relating to client money are identified.
For all of these issues, section 3 of the Professional Statement provides best practice guidance for firms and members.
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N.b. Nothing in this article constitutes legal, professional or financial advice.