Changes to financial sanctions obligations for letting agents

What are financial sanctions?

Financial sanctions are measures imposed by the UK to achieve foreign policy and national security objectives, as well as to protect the integrity of the financial system. These sanctions can include freezing financial assets of designated individuals or organisations and imposing restrictions on financial services and investments. They apply to all individuals and entities within the UK, as well as to UK persons worldwide.

Upcoming changes for letting agents

From 14 May 2025, letting agents will be classified as "relevant firms" under financial sanctions regulations. This classification subjects firms to specific reporting obligations, requiring firms to promptly inform OFSI if they know or suspect that a person is a designated individual or has breached financial sanctions regulations. This obligation applies when such knowledge or suspicion arises during the course of their business activities.

Beware of misinformation

Sanctions compliance and Anti-Money Laundering (AML) are often mentioned together. However, it's important to understand the distinction between these two regulatory regimes for this upcoming change.

AML legislation only applies to letting agents that provide services as defined in the AML regulations. As a reminder letting agents will need to register if they meet both the following criteria:

• Individual rents that are 10,000 euros or more and

• the rental length is a month or longer.

Responsibilities of letting agents

You must report to OFSI as soon as practicable if you identify or suspect that a client or potential client is a designated person or has violated financial sanctions. This duty is a challenging one, in part because the number of designated persons and the prohibitions they are subject to has expanded at a rapid pace and keeping up with the pace of change is demanding.

You must make a report to the relevant authority when you know or suspect that:

• a breach of the sanctions has occurred

• that a person is a designated person

• you hold frozen assets

• and that knowledge or suspicion came to you in the course of business.

It's important to note that there is no monetary threshold for these reporting obligations; they apply to all letting transactions, regardless of the amount involved which is where this guidance differs to the Money Laundering Regulations, where a threshold of €10,000 applies.

Adequate controls

To establish adequate controls, letting agents must implement robust screening processes for both tenants and landlords. This includes conducting thorough sanctions checks at the beginning of any business relationship and monitoring existing relationships for changes. Regular staff training on sanctions compliance and maintaining detailed records of all checks performed are also essential components of an effective control framework.

The sanctions regime operates under strict liability, meaning that taking a risk-based approach will not necessarily protect letting agents from breaching sanctions—even unintentionally. With that said the OFSI guidance on enforcement and penalties does confirm that the OFSI will consider whether the level of due diligence conducted was appropriate to the degree of sanctions risk and nature of the transaction.

However, certain situations are more likely to lead to sanctions breaches or encounters with designated persons or frozen assets. The risk increases when multiple risk factors are present. Below is a non-exhaustive list of some examples :

• A client is aggressive or in some way resistant to the application of controls.

• Name changes by deed poll without a reasonable explanation.

• Involvement of third parties (for example providing payments) which could hide designated persons.

• The client’s name or address is similar to one of the parties on the OFSI consolidated list.

• A client that is willing to significantly overpay.

Consequences of non-compliance

Sanctions legislation is not prescriptive in how compliance must be achieved, only that it must be. The regime is one of strict liability, which means that a person or business will be held liable even if they had no knowledge or reasonable cause to suspect that they were in breach of sanctions.

Breaching the sanctions regime can have severe consequences. OFSI has the authority to impose significant penalties for non-compliance, which can include substantial fines or even criminal prosecution. Beyond the legal and financial repercussions, non-compliance can damage an agent’s reputation, erode client trust, and result in the loss of business opportunities. Ignorance or negligence is not considered a defence, making it crucial for letting agents to be proactive in meeting their reporting obligations.

Implications for landlords and tenants

While the primary responsibility for compliance lies with letting agents, landlords and tenants should be aware of these changes. You may implement additional due diligence procedures to ensure compliance with the new regulations, which could affect the process of renting properties.

The role of technology in compliance

Leveraging tools that allow you to instantly screen individuals and entities without leaving a credit footprint, such as our Lite screening tool, can make it easier for you to ensure compliance without slowing down the process of renting a property. These tools streamline the process of identifying designated individuals by automatically cross-referencing clients against up-to-date sanctions lists. Additionally, these tools often provide real-time alerts and comprehensive reporting features, reducing the risk of human error and enabling agents to quickly flag potential issues to the Office of Financial Sanctions Implementation (OFSI). This aids compliance without making things more difficult for clients.