JOHN O’CALLAGHAN runs thorough the new PSRA regulations regarding the management of clients’ money.

Zero tolerance requires robust action
With the establishment of the Property Services Regulatory Authority (PSRA) in early 2012, and the subsequent introduction of its licensing system in July, change has been something of a given for the property industry this year. In a sector that was largely under-regulated for decades, estate agents, surveyors and other property professionals now find themselves confronted by a robust new regulatory regime that may seem daunting to many in the sheer breadth of its obligations. Arguably among the most significant of these are the regulations governing the management of client moneys, with fines of up to €250,000 and prison sentences among the sanctions applicable to those who contravene them.

Anyone who harbours the suspicion that the industry has been unfairly singled out in the wake of the property collapse can rest assured: these new regulations simply bring the sector into line with other professions where large sums of money are routinely held on behalf of clients. Indeed, the legislation virtually mirrors that which was introduced in the legal profession a number of years back, right down to the zero tolerance reporting regime when rule breaches are observed.

Background
Under the Property Services (Regulation) Act 2011, the PSRA came into being on April 3, 2012. The PSRA licenses property services providers, who are defined as auctioneers/estate agents, letting agents and property management companies. Previously, the courts and Revenue had responsibility for issuing licences to the first two, while the third was unlicensed.

On June 11, 2012, Statutory Instrument No.199 of 2012 was issued, setting out the compliance requirements for client money regulations. The regulations relate to two main scenarios: 1. where the service provider handles client moneys directly; and, 2. where they do not handle client moneys directly, but manage relevant accounts (accounts related to apartment maintenance are examples of this). In both cases, an array of compliance and system requirements now apply, although the obligations are more onerous for those in the first case. A new reporting regime has been introduced, centring on an accountant’s report, which must find that appropriate financial systems and controls are in place.

In line with this, there are many significant actions that PSRA licence holders are required to take:

  • client moneys must be held in a designated client account maintained in the State;
  • ‘client account’ must be disclosed in the name of the account and it must only be used for holding client moneys;
  • multiple client accounts must be with the same bank and there can be no transfer of amounts between client accounts;
  • client moneys must be lodged promptly and payments/withdrawals are only permitted in specified situations;
  • interest earned on client accounts is to be treated as client moneys and paid to the individual client; and,
  • any moneys withdrawn in contravention of the regulations must be made good by the licensee.

A full paper trail is required for managing these accounts. PSRA licensees are required to keep and maintain proper books of accounts and store all details for a minimum period of seven years. There must be a separate client ledger account, a client cash book and a client journal. Clients must be provided with timely statements of fees and outlays where appropriate.

Reporting
Given such demands, and the penalties for non-compliance, it would be hard to overstate the importance of ensuring that the correct systems and procedures are now in place. The input of accountants is central to this. As noted earlier, a key component of the new regulations is the accountant’s report, with accountants expected to undertake appropriate testing and to be satisfied that the licensee has complied with, or will promptly comply with, the regulations.

While the exact format of this testing and reporting has yet to be determined, the approach currently in place in the legal profession is likely to provide the model. In this scenario, accountants will: confirm that they have examined the accounting records; list any breaches of the regulations; provide balancing statements for the six- and 12-month periods; and, supply a list of differences in the balancing statement and the reasons behind them. If the accountant finds that the systems are not appropriate, but the licensee has undertaken to rectify them, they will note this explicitly in their report. Accountants will have limited discretion in terms of non-reporting of errors. All mistakes, no matter how honest or small, will probably have to be noted and licence holders in breach of regulations may find themselves the subject of a separate PSRA audit.

Timeline
The impact of the new regime is far reaching, and there will undoubtedly be cost implications with regard to the new administrative requirements, staff training and accountant costs. However, given the serious repercussions of non-compliance, such costs need to be seen in perspective. For those licensees who have yet to respond to these new challenges, wriggle room is limited. While the PSRA may take a benign approach to any initial issues raised by accountants’ reports, this will be contingent on assurances that corrective action is undertaken. In the subsequent reporting cycle, little leniency can be expected.

Six key questions
If you are uncertain of what your next step should be, here is a simple checklist of questions to consider:

  1. Are you aware of the regulations? The document is only 20 pages long and is required reading for all licensees, and the Property Services (Regulation) Act 2012 (Client Moneys) Regulations 2012 – S.I. No. 199 of 2012 may be viewed at: http://www.irishstatutebook.ie/pdf/2012/en.si.2012.0199.pdf.
  2. Have you taken action to ensure that you have the correct title on bank accounts? They must say ‘client account’.
  3. Have you checked with your accountant whether your accounting system is set up to produce the information you require? Are proper books of account being maintained?
  4. Do you and your employees understand the procedures and controls that are now in place? Is the importance of following up and rectifying errors promptly fully recognised?
  5. Are you preparing and reviewing reconciliations on a monthly basis?
  6. Are you preparing your twice-yearly balancing statement? Have it signed off by your accountant to avoid errors going undetected for multiple periods.

Conclusion
The new regulations are strict but they are not unreasonable, and they follow well-established principles of governance already in place in other professions in Ireland. The principal challenge for most businesses will come in the bedding in period but, with the right training and guidance, and a message of diligence coming from the top, there should be no significant issues for your firm.

A video of John’s CPD presentation – ‘PSRA – Client Money Regulations’ from September 2012 may be viewed at http://www.fireworks-video.com/scs/cpd-psra.htm.

OCallaghan_JohnJohn O’Callaghan
John is Audit Partner at BDO who advise companies
in other sectors on adapting to this kind of
legislation.