New anti-money laundering regulations came into effect for the art market in the UK in 2020.
Lloyds Bank is shutting the accounts of salerooms operating without Royal Institute of Chartered Surveyors accreditation as it seeks to satisfy the requirements of anti-money laundering guidelines.
ATG has heard from two small general salerooms in south-west England which bank with Lloyds. They have been given notice that their undesignated (pooled) clients’ accounts (PCAs), used to protect vendors’ money and keep it separate from day-to-day business expenses, will be closed within 65 days. As none of the other high street banks are offering similar accounts to new customers, the option of moving to a new supplier is not available.
For one of those south-west auction houses, which did not wish to be named, the only workable option will be to trade without an escrow account for clients’ money – something the owner considers anathema to the safe and proper running of an auction house.
“Businesses like mine have been given the option to close or operate incorrectly without a clients’ account. It is not the small auctioneer’s fault that the sector is not regulated. I am sure that there must be lots of other smaller auction houses and dealers who are going through the same chaos.”
Under the Money Laundering Regulations 2017, PCAs can only be issued to ‘low risk’ customers. The fact that the auction business is largely unregulated does present a problem as the banking sector seeks to satisfy the new requirements.
The saleroom owner has been told Lloyds will henceforth only provide undesignated PCAs to businesses with RICS-certified partners or directors. As The Society of Fine Arts Auctioneers (SOFAA) and NAVA Property Mark (formerly The National Association of Valuers and Auctioneers) are not formally recognised regulatory bodies, membership will not necessarily influence the bank’s decision.
The south-west auction house mentioned is one of dozens of firms operating across the UK that are key to the health of the sector as a whole.
“If lower-level auctioneers are removed from trading for reasons of non-compliance the upper levels will also feel the effects”, says the owner. “The lower tiers are the ones that deal with charity donations, recycling and all the highly auctionable items that the higher-end salerooms overlook.
“Never underestimate the importance of us middle to low-end auctioneers. Without us the top end falls a little and the environment suf fers massively via waste.”
Best practice
Running an auction business with a PCA is not a legal requirement. However, to protect vendors and ensure they are paid out should a firm cease trading, it is considered best practice. It is mandatory for all members of SOFAA to have a separate client account or to use an alternative method of protecting client funds that has been approved by SOFAA’s committee.
SOFAA secretary Robbie Barry told ATG that a new auction business or one currently operating is unlikely to be permitted to open an escrow account of vendors’ money.
“We have been aware for some years that due to the latest AML regulations banks have been unwilling to open new client accounts”, he said.
“The policy means it is not possible for auctioneers who do not currently have a client account to obtain one. In these circumstances we can therefore only require members to isolate clients’ money.”
Some established firms have also been the subject of due diligence by banking partners Barclays. Barry added: “A couple of our members, when changing the type of account they hold with their existing banker, have been required to prove their membership of SOFAA.”
A spokesperson for Lloyds Banking Group said: “We have a robust policy to ensure we provide our business customers with the appropriate product to meet their needs in line with Money Laundering Regulations. While these requirements will mean some changes for Auctioneer customers with Undesignated Client Accounts, we’re confident that the alternative options available will be suitable for the vast majority of account holders.
"Our specialist Client Money team will be in contact with customers shortly to support them through the next steps.”
