It’s been a tough year for letting agents. The long-awaited Fees Ban wreaked havoc on the property industry, HMO changes were introduced and the government announced its plan to abolish Section 21.
We get it, the last thing you want to read about is why we think deposit alternatives need to be regulated. But, chances are your agency has already shifted around some business processes to accommodate these changes and you might even be considering a few PropTechs including deposit alternatives ...and we’re here to help out.
Why you don’t want to skip the nitty gritty
Let’s keep it real: there’s lots of providers in this space and they all claim to have the best product on the market. You’re eager to sign them up, start earning commission and give your landlords the necessary cover. Sure, but is your provider financially regulated?
FCA regulated businesses have put processes in place to ensure they treat customers fairly and trade responsibly. Providers who are not regulated will often approach you highlighting other “benefits” including no regulation as less red tape for your agency and/or give you freedom over selling the product (however, the law is clear, deposit alternatives must be offered as a choice).
So do all companies need to be FCA regulated?
If a company offers a financial contract of guarantee they must be authorised by the Financial Conduct Authority (FCA). And in short, it’s exactly what deposit alternatives do, or at least we believe should be doing.
Now, most deposit alternatives have a similar business model: the tenant pays a 1 week non-refundable fee or premium which, in some shape of form, provides a cover for the landlord, i.e. a guarantee that if the tenant defaults on fair payment the landlord will be paid out.
However, what varies massively between providers is their operating model and there’s two things you want to pay attention to:
- the guarantee being offered to the landlord
- the paying out process
The only question you need to ask your provider
The key to understanding the regulatory requirements comes down to this question: what happens if the tenant doesn’t pay out?
If the landlord believes they are receiving a guarantee / a cover / a peace of mind then this does constitute insurance and only insurance companies can offer contracts of insurance as there are (rightly) huge regulatory implications in becoming one. These companies must be FCA regulated.
A company can be authorised in two common ways by the FCA:
- Direct FCA authorisation
- Appointed Representative Authorisation (if you are not offering a contract of insurance but are acting on behalf of the insurer)
If a company is not regulated by the FCA they cannot provide a financial guarantee which we think is an important factor when considering your landlord’s liabilities. For example, by being FCA authorised and underwritten by Canopius, Reposit is able to guarantee your landlord 8 weeks’ cover in case the tenant defaults on a fair claim payment.
Any company that provides a guarantee of money from themselves and not directly from the insurer, even if they claim to be insured themselves, does NOT have the appropriate authorisation.
The great thing about FCA is that regulated businesses also benefit from automatic FSCS protection. This means that in the event that the firm ceases to exist, the customers (in this case, the landlord) are insured up to £85,000 as an added layer of protection.
Companies that do not provide a guarantee from an insurance company cannot provide this protection. So to keep it simple, if your provider is not FCA regulated, it goes out of business and the property is left with zero cover…. this can prove catastrophic for your landlord and cause irreparable damage to your reputation.
Doing your due diligence
You would do your homework before doing business with anyone, right? It’s no different with deposit alternative products. You want a provider that is not only regulated but that works in favour of all parties including your landlords and tenants.
For instance, Reposit adds the landlord, not the tenant, as a beneficiary to their insurance policy underwritten by Canopius. This avoids the risky 14 day cooling-off period allocated to traditional insurance products meaning your landlord will never be left uncovered if a tenant changes their mind.
On top of regulation, costs for tenants and commission rate, you also want to think about the practicality of the integration, does it fit well with the rest of your management softwares? Ideally, when choosing a deposit alternative provider the 2-in-1 type of thing is the way to go. When using Tenant Shop utility/tenancy management platform, or UKtenantdata, your tenants will automatically be offered to purchase a Reposit (or, if they choose to, a traditional cash deposit instead) so you don't need to worry about introducing the product outside this flow.
Search the Financial Services Register to check the status of the firm you are using or planning to use.
FCA authorised and FSCS covered, Reposit gives landlords 8 weeks of cover, by adding them as a beneficiary to our insurance policy underwritten by Canopius, a Lloyd’s of London syndicate insurer.
Adding the landlord, not the tenant, as a beneficiary to our policy, avoids the 14 day cooling off period allocated to insurance products - negating the risk of landlords being left uncovered if a tenant changes their mind.
A vital part of our on-boarding process involves ensuring agents understand how to best use the product and how it applies to tenants. As Reposit is offered as a choice, we encourage agents to discuss with tenants the best option for them.
Speak to our Partnerships Team to see how Reposit can work for your agency. Call us on 020 3608 0051 or email email@example.com