Protecting client money and professional indemnity insurance
As part of the Code of Practice, you need to make sure that:
- you have one, or more, separate and dedicated client account
- you have client money protection
- you have professional indemnity 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 now make sure you meet the standards of practice set out in the Code.
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 isn't entitled to combine the account with any other account
- the bank or building society can't take money from that account if you owe them money from any of your other accounts
Client money protection
Another requirement of the Code is that you need to have client money protection.
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, including becoming a member of an industry/professional body, or through a specialist insurance broker.
The industry and professional bodies with client money protection are:
- ARLA Propertymark (formerly Association of Residential Letting Agents)
- Client Money Protect
- Money Shield
- Law Society of Scotland
- National Approved Letting Scheme (NALS)
- Royal Institution of Chartered Surveyors (RICS)
- UK Association of Letting Agents (UKALA)
Industry bodies who offer client money protection to their members:
Insurance brokers who offer client money protection include:
If you don't have a client bank account or client money protection 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. 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 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 won't be added to the register until you do have them
- if you can't obtain them, your application may be refused
You can find more information here.
Don't hold and handle client money
If you don't hold and handle client money you won't need to have a dedicated client account or client money protection insurance.
For example, this means you don't 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
Professional indemnity insurance
If a client isn't 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.