From 14 May 2025, significant changes to financial sanctions and anti-money laundering (AML) regulations will come into effect, directly impacting letting agents, landlords, and self-managing landlords across the UK. These new requirements mandate financial sanctions checks on both landlords and tenants, with severe penalties, including substantial fines and up to seven years’ imprisonment, for non-compliance. Letting agents and landlords must prepare for these changes to ensure compliance and avoid regulatory action.
What are the new financial sanctions checks?
Under the updated regulations, letting agents and landlords will be required to conduct financial sanctions checks before entering into tenancy agreements. These checks ensure that neither tenants nor landlords appear on the UK’s Consolidated List of designated persons subject to financial sanctions, maintained by the Office of Financial Sanctions Implementation (OFSI).
A comprehensive tenant referencing agency should incorporate these checks for tenants, but landlords can also perform screenings themselves. Any suspected financial issues or matches against the sanctions list must be reported immediately to OFSI, and any letting proceedings involving the flagged individual must be frozen pending further instructions.
Obligations for letting agents and landlords
Verifying identities and financial history
Letting agents and landlords must perform thorough due diligence on all parties involved in a tenancy agreement. The process includes:
- Identity verification: Collecting, verifying, and securely storing identification documents, such as passports or driving licences.
- Proof of address: Obtaining recent utility bills or bank statements to confirm residential history.
- Financial standing: Assessing tenants’ affordability using proof of income, such as payslips or bank statements.
Reporting suspicious activity
Letting agents and landlords must submit a report to OFSI if they have reasonable grounds to suspect that a tenant or landlord is on the sanctions list. Reports must include supporting documentation and be submitted using the Compliance Reporting Form available on GOV.UK.
Record-keeping requirements
All financial sanctions checks and findings must be documented and stored securely for at least five years. This includes copies of documents reviewed, the dates of checks, and any reports submitted to OFSI.
Ongoing monitoring
Tenant financial sanctions status should be regularly reviewed to ensure continued compliance. Agents and landlords should implement periodic checks to confirm that tenants remain eligible to rent under the regulations.
How does this differ from existing AML regulations?
Since January 2020, letting agents managing properties with monthly rents exceeding €10,000 have been required to register with HM Revenue and Customs (HMRC) for AML supervision. These agents must conduct customer due diligence (CDD) checks and report any suspicious activity to the National Crime Agency (NCA).
The new financial sanctions rules apply to all letting agents, regardless of rental value, expanding the scope of compliance beyond AML regulations. This change means that agents handling any property rental must conduct financial sanctions checks, even if they previously fell outside the AML reporting threshold.
HMRC supervision and money laundering risk assessments
Letting agencies that handle high-value rentals must already comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This involves:
- Registering with HMRC for AML supervision: Agencies must apply for registration and cannot operate legally without it.
- Conducting risk assessments: Identifying potential money laundering risks associated with customers, transactions, and locations.
- Carrying out customer due diligence (KYC checks): Verifying the identity of landlords and tenants, ensuring they are not using illicit funds.
- Identifying beneficial owners: Establishing ownership structures for corporate landlords or tenants acting on behalf of others.
Penalties for non-compliance
Failure to adhere to these new financial sanctions and AML obligations carries serious consequences, including:
- Fines calculated on a case-by-case basis by regulatory authorities.
- Possible criminal prosecution, with sentences of up to seven years in prison.
- Business restrictions, including losing the ability to act as a letting agent or landlord.
Agents and landlords must ensure they remain compliant with both AML and financial sanctions regulations to avoid these penalties.
Why these changes matter for letting agents
Letting agents play a crucial role in preventing financial crime. Money laundering can occur when criminals use rental properties to move illicit funds, such as:
- Landlords purchasing properties with criminal proceeds.
- Tenants paying rent using illicit funds.
- Organised crime groups using rental properties as part of broader money laundering schemes.
By complying with these new regulations, letting agents not only safeguard their businesses but also contribute to broader efforts to combat financial crime in the UK.
Preparing for May 2025: Next steps for letting agents
With the implementation deadline approaching, letting agents should take the following steps:
Review existing compliance procedures: Update tenant referencing and landlord verification processes to incorporate financial sanctions checks.
Train staff: Ensure all team members understand the new regulations and reporting obligations.
Implement record-keeping systems: Store all due diligence documentation securely for at least five years.
Engage with professional bodies: Follow updates from industry organisations for best practices.
Stay informed: Regularly check OFSI guidance and updates to ensure ongoing compliance.
