7 Things Letting Agents Need to Know About Upcoming Sanctions Regulations

The UK property sector continues to face increasing regulatory scrutiny as part of the government's efforts to combat money laundering, terrorist financing, and sanctions evasion.

A significant change is on the horizon for letting agents with the expansion of sanctions reporting requirements coming into force on 14 May 2025. This blog outlines the seven most important things letting agents need to know about these upcoming regulations.

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1. All Letting Agents Will Be Subject to Sanctions Reporting Requirements

From 14 May 2025, all letting agents will be subject to sanctions reporting obligations under financial sanctions regulations. Currently, letting agents only need to conduct financial sanctions checks for high-value transactions involving monthly rents of €10,000 or more. The upcoming change removes this threshold, requiring agents to monitor and report all tenancy agreements regardless of rental value.

This change aims to close existing gaps and prevent criminals from exploiting smaller transactions to evade sanctions. Letting agents will be added to the list of "relevant firms" that must comply with financial sanctions regulations, which means increased responsibilities and potential penalties for non-compliance.

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2. No Monetary Threshold Will Apply

Unlike the current anti-money laundering (AML) regulations, which only apply to lettings with a monthly rent of €10,000 or more, the new sanctions reporting obligations will apply to all letting agency work regardless of the value of any rental agreement. This is a significant departure from the current framework and will affect many more letting agents who previously fell below the threshold.

This means that even if you're dealing with standard residential lettings well below the €10,000 threshold, you'll still need to screen all parties against sanctions lists and report any matches to the Office of Financial Sanctions Implementation (OFSI).

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3. Understanding What "Letting Agency Work" Means Under the Regulations

The regulations define "letting agency work" as work consisting of things done in response to instructions from:

• A prospective landlord seeking to find another person to whom to let land for a term of a month or more, or
• A prospective tenant seeking to find land to rent for a term of a month or more

Importantly, the reporting obligation for letting agents kicks in at different points depending on whether you're instructed by a landlord or tenant:

• When instructed by a prospective landlord: The reporting obligation applies from the point that the landlord instructs you, if you know or suspect they are a designated person or have committed a sanctions breach.
• When instructed by a prospective tenant: The obligation only applies once the parties are "in the course of concluding an agreement" – that is, once an offer has been accepted and they are finalising the tenancy.

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4. Key Responsibilities for Letting Agents

Under the expanded regulations, letting agents will have four main responsibilities:

• Screening All Parties: Conduct thorough checks against the UK's financial sanctions list for every landlord, tenant, guarantor, and any other associated party involved in a tenancy agreement.
• Reporting Matches: Notify the Office of Financial Sanctions Implementation (OFSI) immediately if you discover that any party to the tenancy is a designated individual.
• Freezing Transactions: Cease any dealings with individuals identified as subject to sanctions and seek guidance from OFSI on how to proceed.
• Maintaining Records: Document all checks, findings, and reports to ensure compliance and facilitate audits if necessary.

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5. When and What to Report to OFSI

You must report to OFSI as soon as possible if you know or have reasonable cause to suspect that a person:

• Is a designated person. (Someone subject to financial sanctions)
• Has committed a breach of financial sanctions regulations.

If the designated person is your customer, you must also report:

• The nature and amount/quantity of any funds or economic resources you hold for them.
• When you first had knowledge or suspicion.

When reporting to OFSI, you must include:

• The information on which your knowledge or suspicion is based.
• Any identifying information you have about the designated person.
• Details of funds or economic resources held for the customer. (If applicable)

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6. Penalties for Non-Compliance Are Severe

Failing to comply with sanctions obligations can result in significant penalties, including:

• Substantial financial fines.
• Reputational damage.
• Potential criminal charges.

In 2024 alone, HM Revenue and Customs (HMRC) imposed over £1.6 million in fines for AML failures within the property sector, highlighting the government's strict stance on enforcement.

The sanctions regime carries similar if not more severe penalties, with potential criminal prosecution leading to unlimited fines and/or imprisonment for serious breaches.

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7. How to Prepare for the New Requirements

To ensure compliance with the new regulations before they come into effect in May 2025, letting agents should:

• Evaluate Current Practices: Conduct a gap analysis to identify areas that need improvement in your current compliance framework.
• Invest in Screening Tools: Consider implementing automated screening against sanctions lists to save time and reduce errors.
• Train Staff: Ensure all employees understand the new requirements and know how to identify and report potential sanctions matches.
• Review Internal Policies: Update your AML and compliance procedures to incorporate the expanded sanctions reporting requirements.
• Stay Informed: Regularly review updates to the sanctions list and maintain awareness of evolving regulatory expectations.
• Seek Expert Guidance: Consider consulting with compliance professionals to ensure your business meets all regulatory requirements.