When is CMP not CMP?

Letting agents and property managers could be forgiven for being concerned about client money protection (CMP) recently following the aftermath of the collapse of outsourced property management firm ARPM and some degree of U-turn by certain CMP providers.

One core issue that has been highlighted is whether client funds are held in an Electronic Money Institution (EMI) regulated by the FCA or a Bank regulated by the FCA. 

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, a bank takes client funds and uses them to finance loans and mortgages, that is why interest is payable with a bank but not an EMI. However, if the bank were to fail, an agent could only claim back up to £85,000 using the FSCS scheme, the rest would be their responsibility.

If an agent is using a leading automated client account software which opens a bank account for them, that account is not covered by the FSCS scheme at all. This would mean that if the accounting software business were to fail, all client funds could be lost.

At Lettspay we were fully aware of the challenges of being a disrupter in the market. But we were, and still are, ensuring that our agent’s client funds are in the safest location and that they still benefit from the great automation LettsPay brings to the business.

Over the last few months, it has become apparent 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. 

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.

Therefore, in order to satisfy these and all CMP schemes, LettsPay has introduced a new product which works with an agent's client bank account. This ensures that agents will get all of the automation benefits of LettsPay and satisfy the traditional CMP schemes new stance.

With the new product, all of the agent’s client funds will be stored at a bank to satisfy the traditional CMP schemes. The client will still retain all of the great automation and easy user journey so there is no reduction in the quality of the LettsPay product. 

Lettspay have ensured 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 – not the 100% provided by our current EMI.

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 the 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.

At Lettspay we are working with agents in regards EMI to either move funds to a supportive CMP scheme or move an agent on to the new product ensuring that client funds are protected at all times (within FSCS limits).

At LettsPay we find this changed situation very frustrating but we have to remember that innovative change sometimes takes time and we are certain that, as security and protecting the clients’ funds was the whole essence of the CMP regulation, they will soon come to recognise that EMI’s are the safest place for these funds to sit. Indeed, in Scotland the regulations are entirely happy about using an appropriate EMI. In the meantime, for England and Wales we now have the alternate product to maintain security where required. 

Years of working in the Private Rental Sector with client money has shown that it is one thing to get CMP insurance but ensuring your clients money is safe can be another thing.

Don’t get caught out. I shall be delighted to talk with you.

Garrett Foxon

CEO Lettspay