The landscape of the UK rental market has undergone a significant transformation with the introduction of new regulations on May 14, 2025. Landlords, letting agents, and tenants are now subject to mandatory Politically Exposed Persons (PEP) and financial sanctions checks, ushering in a new era of enhanced due diligence aimed at combating financial crime.
These changes, stemming from updated Anti-Money Laundering (AML) and financial sanctions regulations, broaden the scope of existing compliance requirements, bringing the lettings sector in line with other regulated industries such as real estate, law, and finance.
What’s Changed?
Previously, AML checks were primarily mandatory for high-value tenancies, typically those exceeding a monthly rent of £8,300 (or €10,000). The significant shift on May 14, 2025, is the removal of this threshold. This means that all tenancies, regardless of their rental value, now require comprehensive due diligence checks.
Key Requirements and Who is Affected:
- Mandatory Checks for All Parties: From May 14, 2025, all landlords, tenants, guarantors, and adult occupiers (over 18) living at the property will be required to undergo Customer Due Diligence (CDD) checks before the commencement of any new tenancy. This will be rolled out in stages, with new tenancies and new landlords affected first, followed by renewed tenancies and existing tenancies when relevant changes occur (e.g., change to rent, change of tenant or landlord ownership).
- Proof of Property Ownership: Landlords will need to provide documentation confirming ownership of the rental property.
- PEP and Sanctions Screening:
- Sanctions Checks: Letting agents are now legally obligated to screen all prospective landlords, tenants, and other relevant parties against the UK’s official sanctions list. These lists include individuals or entities linked to money laundering, terrorist financing, human rights violations, organised crime, political corruption, and other national security threats. If a match is found or suspected, agents are legally required to freeze any associated assets or property and report it immediately to the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury. Failure to comply can lead to severe penalties, including fines of up to £1 million and criminal prosecution.
- PEP Checks: While not illegal to deal with, Politically Exposed Persons (PEPs) – individuals who hold (or have held) prominent public positions, or their close associates and family members – require enhanced due diligence. This is because PEPs are considered to pose a higher risk of corruption, bribery, or money laundering.
- Record Keeping: Agents and self-managing landlords must maintain detailed records of all checks and actions taken for a minimum of five years to demonstrate compliance. This includes identity documents and verification checks.
- Ongoing Monitoring: Beyond initial checks, agents are expected to monitor landlords and tenants for any changes that might affect their status concerning financial sanctions.
Implications for Stakeholders:
- For Letting Agents: The new regulations place significant new responsibilities on letting agents, classifying them as “relevant firms” under the UK’s sanctions regime. They must now integrate sanctions checks into their routine identity verification (KYC) processes, update their compliance policies, and provide staff training on how to identify red flags and report to OFSI. Many reputable referencing providers are now automating these checks to streamline the process.
- For Landlords: While letting agents are now legally required to carry out these checks, self-managing landlords are also obligated to conduct similar due diligence on their tenants. Even if using an agent, landlords should be aware of these new requirements and ensure their agents are compliant. Non-compliance, even by mistake, can result in substantial fines and potential criminal penalties. The cost of these checks, often around £10 per person, will typically be invoiced to the landlord.
- For Tenants: Prospective tenants will need to provide valid photo identification (e.g., passport, driving license), proof of address (e.g., utility bills, bank statements), and for non-UK nationals, immigration status documents to comply with both AML and Right to Rent checks. While these checks may introduce minor delays in the application process, they are a necessary step towards a more secure rental market.
The Bigger Picture:
These new regulations are a critical step in the UK Government’s wider efforts to prevent money laundering and terrorist financing within the property sector. By increasing transparency and accountability, the aim is to create a more secure and legitimate rental market for everyone involved. Landlords, tenants, and letting agents alike must understand and adhere to these new obligations to avoid severe penalties and contribute to the fight against financial crime.
For further information please follow this link – https://www.gov.uk/government/publications/financial-sanctions-guidance-for-letting-agents/financial-sanctions-guidance-for-letting-agents
