What is the Client Money Protection Scheme and Why Do Clients Need It?

Ben Gallizzi

By Ben Gallizzi

07 November 2017

The Client Money Protection (CMP) scheme is an insurance product taken out by letting agents to protect landlords, tenants and other clients against the misappropriation of funds (such as deposits, rents and repairs money) or the agent going into administration. A recent Government report estimated that letting agents hold approximately £2.7 billion in client funds but, despite the large sums involved, many agents are completely unaware of CMP and the protection it provides.

It has been a legal requirement for agents to prominently display on their website whether or not they have CMP cover since 2015, with agents who fail to comply risking fines of up to £5,000. And earlier this year a CMP working group, set up by the government, recommended that Client Money Protection become mandatory for all letting agents in England* that handle client money, although no date has yet been set for its inception.

So why do agents need a Client Money Protection scheme?

It demonstrates commitment

Voluntarily opting into a CMP scheme before it becomes a legal requirement (it is estimated 60-80% of landlords currently participate in a CMP scheme) demonstrates a commitment by the agent to protecting their clients against financial loss.

It enhances credibility

CMP cover enhances the reputability and credibility of an agency and at this point, when it’s not mandatory to have such protection, it sets agents who have opted in apart from their competition in a positive way, similar to those who use repairs and maintenance management software. The government working group noted in its recommendations that agents who have not opted into a CMP scheme present the highest risk of misappropriating client funds. 

It offers protection

Even the most professional agent is unable to control the ebb and flow of the property market. With lower rents and the abolition of fees, many smaller agencies are feeling the squeeze. CMP cover protects against not just misappropriation but also administration, meaning that even if an agency goes under, it can honour its commitments to its clients.

Although it is NOT currently mandatory to posses client money protection cover, the industry campaign and findings of the working group make its legalisation inevitable. The government’s working group hopes that enforced cover will drive up the standards of letting agents across the industry and guarantee landlords and tenants’ funds.

Agents who have not yet opted into a scheme should review their options and look to get their cover in place to utilise the competitive rates on offer and ensure that they don’t stand out from the crowd for all the wrong reasons.

*Holding valid CMP cover will be mandatory in Scotland from 1st January 2018 under the new Scotland Lettings Code of Conduct. All letting agents in Wales are required to register with Rent Smart Wales; part of the application process requires the agent to have purchased professional indemnity insurance, is a member of a consumer redress scheme and is able to offer client money protection.  

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This article is intended for information purposes only and does not constitute legal advice. If you have any questions related to issues in this article, we strongly advise contacting a legal professional.
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Ben Gallizzi

By Ben Gallizzi

07 November 2017

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