In October 2019, Countrywide, one of the UK’s largest group of estate agents, was fined £100,000 for moving £10m of old client money deposits into its own office account.
Between 2008 and 2018, Countrywide transferred a sum of £10,093,866 of client funds, representing unclaimed and unidentified client balances that had not been claimed for six years or more, from the firm's client account into the firm's office account, when it was not permitted to do so. In doing so, Countrywide failed to preserve the security of client funds in breach of the Royal Institute of Chartered Surveyors’ (“RICS”) rules.
Unclaimed and unidentified client balances, or orphaned client funds as they are often called, are funds held by a firm in circumstances where the rightful recipient of those funds cannot be identified or located. A firm may be unable to locate or identify the rightful recipient of funds for a variety of reasons, including but not limited to:
a) death of an individual client
b) insolvency of a corporate client
c) client failure to provide a reference on a payment transaction
d) client change of address
b) insolvency of a corporate client
c) client failure to provide a reference on a payment transaction
d) client change of address
RICS asserted that Countrywide’s conduct amounted to a failure to keep client money safe because, whilst the funds were held outside of a client account, they were not subject to the same protections that exist when they are held in the firm’s client account. As a point of principle, whenever funds are exposed to risk, they are not safe.
RICS rules are clear. A company should ensure that: “Adequate controls are in place over unidentified client money to ensure that such funds are kept securely. The client should be located and reimbursed as soon as possible. Such funds held for more than six years may be donated to a registered charity.”
Countrywide accepted the charge and the fine and has paid back the £10m to its client account.
The fine was levied by RICS in accordance with its rules for members, hence the rules are only applicable to RICS members.
In Gibraltar, client money rules for estate agents are established in the Fair Trading Act. The client money rules dictate that withdrawals from a client account can only be made when it is:
(a) properly required for a payment to or on behalf of the client
(b) properly required for payment of a disbursement on behalf of the client
(c) properly required in full or partial reimbursement of money spent by you on behalf of the client
(d) transferred to another client account on the agreement of your client
(e) withdrawn on the client's instructions, provided the instructions are agreed in writing
(f) money which has been paid into the account in breach of this Code (eg money paid into the wrong separate designated client account)
(b) properly required for payment of a disbursement on behalf of the client
(c) properly required in full or partial reimbursement of money spent by you on behalf of the client
(d) transferred to another client account on the agreement of your client
(e) withdrawn on the client's instructions, provided the instructions are agreed in writing
(f) money which has been paid into the account in breach of this Code (eg money paid into the wrong separate designated client account)
There is no mention of how to deal with unidentified client money over 6 years.
At Chestertons Gibraltar, we follow best practice in respect of unidentified monies and enact the following procedures:
a) ensure that all efforts are made to trace the clients or owners of the money
b) hold the surplus money in a client account
c) hold surplus money for at least six years
d) if, after six years, the client or owner of the money has not been found and no true claimant to the money has come forward it may be donated to a registered charity.
b) hold the surplus money in a client account
c) hold surplus money for at least six years
d) if, after six years, the client or owner of the money has not been found and no true claimant to the money has come forward it may be donated to a registered charity.
Not every estate agent is the same. If you are concerned about your tenant deposit or your purchase deposit, ask your estate agent for their policy on client money.
Contributed by Mike Nicholls