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Most letting agencies offer a wide variety of different services and products to their landlords. According to the needs of individual clients this may range from simply finding a tenant for a one-off fee for a landlord with one property who wishes to carry out all the maintenance and repairs himself to a large portfolio landlord with thirty properties who instructs the agency to do everything on his behalf.

Most letting agencies offer a wide variety of different services and products to their landlords. According to the needs of individual clients this may range from simply finding a tenant for a one-off fee for a landlord with one property who wishes to carry out all the maintenance and repairs himself to a large portfolio landlord with thirty properties who instructs the agency to do everything on his behalf. This is a great responsibility for a letting agent because such a landlord is effectively asking his agent to run his business for him and will hand over the keys to assets worth a lot of money.

With the exception of those agencies that choose to join self-policing bodies and trade associations that encourage professional standards and have a code of conduct, the whole of the lettings industry is largely unregulated. An inevitable consequence of this is that standards can vary greatly. As more and more people are choosing to rent both as a lifestyle choice and as a result of financial necessity, the private rented sector has continued to increase accordingly. More and more landlords are choosing to use letting agencies for the expertise they provide. In addition, letting agencies themselves are providing more and more services such as rent guarantee insurance, legal insurance, deposit insurance (as an alternative to using one of the three tenancy deposit schemes), public liability insurance and professional indemnity insurance. Although there is no legal requirement for a letting agency to be regulated for the normal day to day activities of a lettings business in terms of actions that are solely involved with providing a service to both landlords and tenants, certain of these other activities do come under regulatory control. If an agent chooses to provide insurance cover, sell mortgages, offer rent guarantee protection, legal insurance indemnity or provide any financial services of any kind, they will have to register with the Financial Conduct Authority (FCA).

The FCA, along with the Prudential Regulation Authority (PRA), was formed when the original Financial Services Authority (FSA) was split into these two separate regulatory authorities.

The FCA regulate the financial services industry in the UK. Their aim is to protect consumers, ensure the industry remains stable and promote healthy competition between financial services providers.

The PRA is a part of the Bank of England and responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. It sets standards and supervises financial institutions at the level of the individual firm.

Contact details for the FCA and the PRS, and their website links, can be found in the Additional Resources section of this subject.

The original Financial Services Authority (FSA), was an independent non-governmental body whose role was to regulate all activity relating to the financial services industry in the UK. It was set up by the Financial Services and Markets Act 2000 and was directly responsible to the Treasury Ministers and through them to Parliament. The FSA was financed by the organisations it regulated and was a company limited by guarantee.

The original Financial Services Authority (FSA), was an independent non-governmental body whose role was to regulate all activity relating to the financial services industry in the UK. It was set up by the Financial Services and Markets Act 2000 and was directly responsible to the Treasury Ministers and through them to Parliament. The FSA was financed by the organisations it regulated and was a company limited by guarantee.

It has now been split into two separate regulatory authorities, the Financial Conduct Authority, FCA, and the Prudential Regulatory Authority, PRA.

The FCA has four main roles:

* Regulating – by supervising the conduct of firms, and regulating the prudential standards of those firms not covered by the Prudential Regulation Authority.

* Protecting – ensuring firms stick to the rules and consumers don’t fall victim to scams or get tied in to unfair contracts.

* Championing – ensuring the financial services industry treats consumers fairly and keeps to their rules and standards.

* Enforcement – there are real and meaningful consequences for those firms or individuals who don’t play by the rules.

Under the legislation, any person or firm carrying out a ‘regulated activity’ within the UK must be authorised by the FCA unless a statutory exemption applies. A breach of this may be a criminal offence resulting in a maximum of two years imprisonment and/or a fine upon a successful indictment.

For an ‘activity’ to be a ‘regulated activity’ it must be carried out ‘…by way of business’.

For most letting agencies a regulated activity will mean the promotion or sale of any financial product or service such as advising on and arranging regulated mortgage contracts, selling or administering insurance.

On the FCA register there are three categories or classifications dealing with the provision of financial services. They are: firstly, introduction of services, whereby the agency merely promotes the product or services but leaves the potential client to deal directly with the supplier. Secondly, where the firm concerned has an approved representative status which will enable products to be sold for service providers who have approved the agency to act as their agents. This level of classification only allows the agency to act for financial organisations who have given such approval. The final level of category is fully authorised FCA status which covers not only the previous two categories but enables the agency concerned to deal with any insurance company.

On the FCA register there are three categories or classifications dealing with the provision of financial services. They are: firstly, introduction of services, whereby the agency merely promotes the product or services but leaves the potential client to deal directly with the supplier. Secondly, where the firm concerned has an approved representative status which will enable products to be sold for service providers who have approved the agency to act as their agents. This level of classification only allows the agency to act for financial organisations who have given such approval. The final level of category is fully authorised FCA status which covers not only the previous two categories but enables the agency concerned to deal with any insurance company.

• If an agency negotiates with an insurer or broker the terms of a contract for insurance and the client landlord enters into an agreement as a result (or if the agency commits the landlord having being so instructed) then the activity will be subject to FCA regulation. This goes beyond merely providing information and will be what is known as a ‘regulated activity’. It is also important that if an agency is so instructed that this should be confirmed in writing.
• If the agency completes a proposal form on behalf of the client and submits it to the insurer on behalf of the landlord then this activity will be subject to FCA regulation because ‘making arrangements’ is considered to be a ‘regulated activity’.
• If an agency receives policy documents and just gives those documents to a tenant who expresses an interest this will not be deemed to be a regulated activity because the agency is merely providing information. However, if the agency is subject to an arrangement to advise the tenants about a policy for commission or remuneration this would be a regulated activity.
• The tenant cannot be required to have insurance under the tenant fee ban legislation. An agency behaving with due diligence should point out to a tenant that there is no policy in place to protect their contents, if that is the case, but it is the personal business of the tenant to decide whether or not to take out such insurance. This is not a regulated activity.
• If an agency negotiates a policy renewal on behalf of a landlord this will amount to ‘arranging’ and will almost certainly be a ‘regulated activity’.
• If an agency advises the insurer or broker of any changes or adjustments in an ongoing contract such as notification of other interested parties this will probably amount to ‘assisting in the administration and performance of a contract of insurance’ which is a ‘regulated activity’.
• If an agent assists with claims handling in the case where assistance and information is provided to help the client landlord make a claim in for example, a scenario where someone has difficulty in filling out forms, this will not require regulation because providing such help will not be ‘assisting in the performance of a contract of insurance’.

The above situations regarding the possibility of an agency having to register with the FCA are common but by no means exhaustive. If in doubt or for further more detailed information the main contact details for the FCA can be found in the Additional Resources section of this subject.