Introduction

From May 14, 2025 this year, letting agents in the UK are subject to huge changes when it comes to compliance, as the government moves to tighten anti-money laundering (AML) regulations and financial sanctions reporting obligations.

This whitepaper examines the past, current, and upcoming changes to AML rules for letting agents, explains what these changes mean for letting agents in the UK, and how they can comply with their new obligations.

Letting agents – a brief history of AML requirements

Before January 2020, letting agents were not subject to the Money Laundering Regulations (MLRs), meaning there was limited oversight of financial transactions within the lettings sector. This lack of regulation allowed a high degree of anonymity, making it easier for illicit funds to flow through rental payments undetected.

While letting agents were legally required to conduct Right to Rent checks on tenants, they did not have to carry out customer due diligence (CDD) unless they were also registered as estate agents.

This meant that the identities of landlords, tenants, and other involved parties were often unverified, creating opportunities for money laundering. Criminals could exploit the system in several ways—landlords might have purchased properties with illicit funds, tenants could use rental payments to legitimise dirty money, or both parties could be working together as part of a larger money-laundering operation.

In an attempt to clamp down on the exploitation of letting agents by money launderers and other financial criminals, in January 2020, MLRs were extended to include letting agents, but only those handling rental agreements over €10,000 per month. Under the new rules, letting agents dealing with these higher value rental agreements had to register with
HMRC, conduct customer due diligence, and report suspicious transactions.

However, due to the €10,000 per month threshold, the majority of lets, and therefore, the majority of letting agents remained outside of these regulations, meaning most letting agents did not have to worry about AML compliance.

New obligations from May 2025

Under the new rules, which come into effect from May,2025, all letting agents will be required to comply with financial sanctions regulations, regardless of the size of their rental agreements.

This does not mean the threshold for registering for AML supervision is changing – those letting agents that deal with rental agreements under €10,000 still do not have to register – but they will have to report suspicions of financial sanctions breaches, whether related to landlords, tenants, or other parties involved in their transactions.

Although letting agents are not officially becoming regulated, they will need to identify designated persons (DPs)—individuals or organisations subject to sanctions—and report the nature and value of any funds or economic resources held on their behalf.

It also means that letting agents must, from May 1, 2025, report any knowledge or reasonable suspicion of financial sanctions breaches or DPs directly to the Office of Financial Sanctions Implementation (OFSI).

What does this mean in practice?

The changes are somewhat complicated as letting agents currently under the €10,000 threshold are still not required to register for AML supervision, but they are being added to the list of ‘relevant firms’ required to report to OFSI.

This means that they must inform OFSI as soon as practicable if they know or suspect:

• A person is a DP.

• A person has breached a prohibition or failed to comply with an obligation under sanctions regulations.

If a relevant firm knows or suspects a person is a DP and that person is a customer, the firm must:

• State the nature and amount or quantity of any funds or economic resources held for that customer.
• As a relevant firm, letting agents will be obligated to report if the information is received in the course of carrying out business. The OFSI has a ‘compliance reporting form’ which provides details on what information is required; this must be completed and emailed toofsi@hmtreasury.gov.uk
  
  

Barriers to compliance

The changes are somewhat complicated as letting agents currently under the €10,000 threshold are still not required to register for AML supervision, but they are being added to the list of ‘relevant firms’ required to report to OFSI. This means that they must inform OFSI as soon as practicable if they know or suspect:

While the new regulations may sound simple in theory, actually identifying a DP, or a breach is much more complicated, especially for letting agents that have never had to comply with any kind of AML or financial sanctions requirements before.

Given that the vast majority of letting agents are currently under the €10,000 threshold, the new rules that come into effect in April will affect the vast majority, bringing them under financial reporting obligations for the first time.

These new obligations will likely add to the existing pressures faced by letting agents. According to SmartSearch’s latest report The Compliance Forecast – Navigating Financial Crime and Regulation in 2025, 37% of letting agents say they are worried about complying with future regulatory changes, while more than a third (38%) admit that financial crime is one of the biggest factors hindering economic growth."

How to comply

In order to comply properly with the new regulations, letting agents will need to ensure they have the ability to complete enhanced due diligence on their clients, have monitoring systems in place – both in terms of the status of their clients and their funds - and train staff to identify and report suspicious activity.

Challenges of compliance without a digital compliance solution: Enhanced Due Diligence: Letting agents must invest significant time and resources to complete thorough background checks and verify client identities.

Monitoring Systems: Establishing and maintaining systems to monitor the status of clients and their funds requires substantial investment in technology and infrastructure.

Regulatory Complexity: Navigating the complex and evolving regulatory landscape can be daunting without specialised tools or support. Resource Allocation: Small and medium-sized letting agents may struggle with allocating resources effectively to meet compliance requirements.

Reputational Risk: Failure to comply with regulations can result in significant reputational damage, fines, and legal consequences. Operational Efficiency: Manual processes for compliance checks can hinder operational efficiency and slow down business transactions.

Benefits of a digital compliance solution

The most efficient, cost-effective and accurate way for letting agents to comply with the new financial sanctions regulations is to use a digital compliance solution.

SmartSearch empowers businesses with secure identities. It’s award-winning platform already provides AML, anti-fraud and compliance solutions for more than 7,000 businesses in the UK, including property firms like estate agents – who are fully regulated – and a wide range of legal, financial, and accountancy businesses.

With one, easy to use platform it provides:

• Automated screening for sanctions and PEPs: As part of the initial verification check, SmartSearch also performs instant global sanctions checks - including screening for Politically Exposed Persons (PEPs) and Relatives/Close Associates (RCAs) - providing clear pass or refer results in a matter of seconds.
• Multi-Bureau Coverage: Our multi-bureau solution ensures you will have robust data coverage with both positive and negative verification checks, achieving a market leading pass rate of up to 97%.
• Continuous Monitoring: One of the key considerations for letting agents should be ongoing compliance – the initial check will give a pass or fail of that individual at that time, but their status could change. That is why SmartSearch includes ongoing monitoring of clients against real-time sanctions lists and alerting you immediately of any changes to the status
  of any clients, ensuring ongoing compliance even after the initial check.
• Simple to understand results: Once the check has been run, the results appear in a single report that is clear and easy to understand and can be downloaded in seconds. And, because all searches and screening results are automatically saved on the SmartSearch system, you can gain instant access to customer data whenever you need it.
• User-Friendly Interface: SmartSearch’s user-friendly system, clear guidelines and comprehensive training process means everyone in the company will be able to perform AML checks quickly and easily.
• Regulatory Confidence: By automating these processes, SmartSearch reduces human error and ensures your business meets its obligations under the new regulations. Plus, all users have access to the same system, enabling them to complete AML checks wherever they are, whenever they need to. Additionally, this central system is constantly being improved and updated to ensure it complies with all the latest regulations meaning all users remain compliant even when regulations change, which they do, regularly.
• Seamless integration: SmartSearch seamlessly integrates with letting agents' systems, saving time and money while making compliance easier and more efficient. The whole process can be fully complete in just 24 hours, so letting agents can continue client onboarding with minimal disruption and carry out AML checks using their existing data
  files.