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A review is taking place in a bid to further safeguard the money of private landlords and their tenants from fraud or bankruptcy. Letting agents are estimated to be holding as much as £2.7 billion in tenants’ deposits, rents and money for repairs. So it is little wonder that the Government is rightly concerned that this money is not protected through insurance or Client Money Protection schemes. This means that the buy-to-let investor and their tenants could be significantly out of pocket if their agent goes bust or mishandles funds.

The Government has set up a working group to look into CMP, how it operates at the moment and whether these schemes should be made mandatory. The working party, through the views and responses it receives, will decide whether mandatory CMP is necessary.

The review will look into whether this money is properly protected at the moment. As it stands today, CMP schemes are voluntary with Government estimates suggesting they are used by between 60 to 80 per cent of letting agents. This means that there is potentially a large sum of money which may not be protected in any way. In an open letter launching the consultation, housing minister Gavin Barwell, pointed out that both the landlord and tenant risk losing their money if the letting agent they use is one of the many not covered by CMP.

Agents pay a membership fee of up to £500 to join a scheme which contributes to a central pot which can be used to cover claims by either tenants or landlords. But, as the open letter points out, intrinsically honest agents would be effectively buying insurance against self-actuated fraud. This rather begs the question as to whether a mandatory scheme is really the answer.

At present, it is standard business practice for agents to hold tenants’ or landlords’ money in registered client accounts agreed with their bank which protects the money. This ensures that it is returned to their client and not used to settle any of the agent’s debts if they should go bankrupt. Using this approach, agents can protect client monies without having to take out third-party insurance.

The review may well discover that discerning landlords and tenants already only look for agents who are members of a scheme because they recognise the enhanced protection this offers them. With the onus on greater transparency within the rental sector, agents are required to indicate whether or not they are already a member of a scheme and people may feel more confident dealing with a company which has clearly protected their interests.

Agents already taking part in a CMP scheme are invited to join in the review to point out the benefits they receive by being members and whether they think that all agents should be forced to join. Members of the public, which include tenants and landlords, have until October 3 to respond to the review either online or by email through the website (