Professional indemnity insurance and protecting client money
As part of the Code of Practice, you need to make sure that you have professional indemnity insurance.
If you also hold and handle client money, you will also need to make sure that you have:
- one, or more, separate and dedicated client accounts
- client money protection insurance
This is to make sure that your client's money is protected, and your business is protected if it has to defend itself following a claim.
The Code came into force on 31 January 2018 and you must meet the standards of practice set out in the Code.
Professional indemnity insurance
If a client is not happy with the service you provided or you made a mistake which cost them money, they might want to pursue you for compensation.
The Code requires you to get professional indemnity insurance. This helps protect you from claims by dissatisfied clients by covering the cost of compensation for loss or damage caused by your business.
Cover must be on a 'full civil liability' basis, and it should be 'retroactive' if possible.
Retroactive cover means the insurance protects you from claims for work carried out in the past, before the policy started.
If you do not hold and handle client money
If you do not hold and handle client money you will not need to have a dedicated client account or client money protection insurance.
For example, this means you do not do any of the following on behalf of landlords and tenants:
- hold, handle or collect rent
- take and lodge deposits
- hold and handle money for repairs and maintenance
If you do hold and handle client money
If you do hold and handle client money you will need to have a dedicated client account or client money protection insurance.
Separate client account
One of the requirements of the Code is that you need to hold client money in one or more separate bank accounts.
The client account must:
- be separate from your main business or private accounts
- only contain your clients' money and nothing else
- be held with a bank or building society authorised by the Financial Conduct Authority
The Code also needs you to have written confirmation from your bank or building society that:
- all the money in the account is client money, and
- the bank or building society is not entitled to combine the account with any other account
- the bank or building society cannot take money from that account if you owe them money from any of your other accounts
Client money protection insurance
Another requirement of the Code is that you need to have client money protection insurance.
This is a special type of insurance that protects the money of landlords and tenants in case the owners of the letting agency steal or misuse it.
This money is usually tenants' and landlords' rental payments, but can also include money held for repairs and maintenance.
There are a number of different ways you can get client money protection insurance, including becoming a member of an industry/professional body, or through a specialist insurance broker.
The industry and professional bodies with client money protection insurance are:
- ARLA Propertymark (formerly Association of Residential Letting Agents)
- Client Money Protect
- Money Shield
- Law Society of Scotland
- Royal Institution of Chartered Surveyors (RICS)
- UK Association of Letting Agents (UKALA)
Industry bodies who offer client money protection insurance to their members:
Insurance brokers who offer client money protection insurance include:
If you do not have a client bank account or client money protection insurance yet
You can make an application to join the register even if you are still in the process of opening a client bank account and obtaining suitable insurance cover. However, you will need to have these in place before you can be admitted to the register.
You can apply with no client account or client money protection insurance in place, but be aware that:
- you should continue to try to get them
- part of the registration process will ask you about the steps you've taken to get them
- you will not be added to the register until you do have them
- if you cannot obtain them, your application may be refused
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