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Solving proptech problems with better banking

Regulators are ramping up enforcement of client money rules in the property sector‍—‌what does this mean for letting agents and proptech companies?

Photo by Annie Spratt / Unsplash

Portrait of Shanzé Ijaz Munir
Shanzé Ijaz MunirThursday 19 October 2023

The late 1990s and early 2000s saw the introduction of technology to the property sector and emergence of online property platforms. This technology wave also extended to various areas of the industry bringing with it all kinds of digital property management solutions to streamline the manual processes in the sector.

One of these processes was the management of funds. Facilitating payments, holding funds during transactions, reconciling funds received and distributing funds between landlords and service providers are important functions in property management.

Historically, the rules around how funds in the sector are managed have been loose, but that is starting to change. As this change occurs, new struggles are emerging for property companies. Many of them are searching for banking partners that can help them fulfil their regulatory obligations while increasing efficiency and keeping up with innovation in the industry.

The proptech regulatory landscape

The introduction of the Tenant Fees Act in April 2019 significantly altered the UK’s private renting market. At the heart of this regulation is the protection of landlords and tenants against a small number of unscrupulous agents who misappropriate funds.

The new regulations mandates letting agents in England, Wales and Scotland adhere to Client Money Protection (CMP) rules that require them to hold their clients’ money with a Financial Conduct Authority (FCA) authorised bank or building society.

Keeping client money in ring-fenced accounts, separate from a company’s operational funds offers landlords and tenants a layer of security and protection from potential malpractice. This also ensures that the client’s money is unaffected should the letting agent go out of business.

Seems like a simple enough regulation, so what’s the problem? Well, it’s a bit more complicated than it seems.

Banking bottlenecks

  • The compliance problem. At the time the new regulation was introduced, some letting agencies had client money accounts with electronic money institutions (EMIs) instead of banks. EMIs are not authorised to hold client money. In light of the new regulations, letting agencies that previously worked with EMIs must find a banking partner that can provide FCA-compliant client money accounts.
  • The technology problem. The property industry thrives on innovation. Traditional banks are burdened with outdated technology that makes it hard for proptech companies to seamlessly integrate and programmatically open client money accounts.
  • The risk problem. Banks tend to regard the property management sector as higher risk, approaching it cautiously. It's also widely known that banks have been scaling back their provision of client accounts due to increased compliance requirements associated with the proptech industry.

The banking solution

At Griffin, we understand the challenges that proptech businesses face, and we’ve configured our products to address them.

Our industry specific onboarding flow coupled with ongoing financial crime monitoring allows us to support proptech firms and appropriately risk assess end users. This puts us in a better position to offer proptech companies FCA compliant bank accounts to hold client money.

To learn more about what we’ve built, look out for our case study on holding client money for proptech firms.

Interested in holding client money with Griffin? Start building in our sandbox today!