Anti-Money Laundering Checks When Buying a House

24/08/2022
Written by: Ieuan Leigh 

Buying a first or new property can be an exciting but very stressful time for first-time buyers and homeowners, especially when doing through anti-money laundering checks when buying a house. One of these stresses is the continuous back and forth with estate agents, solicitors and financial institutes, supplying documents and identification such as driver's licence and passport. This is a standard practice where firms have a legal obligation to request the relevant documents from you in the fight against money laundering. Below we will outline why they have to do this and what checks are performed on you as they verify your identity.

What checks are performed when buying a house?

The current state of the property market in the UK is a perfect place for criminal organisations to launder their money by purchasing a property. This can give the impression that the funds acquired by these organisations were legitimate. For this reason, the UK government requires individuals to go through the Anti Money-Laundering screening process as part of their risk assessment. You can read more about Anti-Money-Laundering (AML) checks here.

Estate agents perform these checks on every person purchasing a property. These checks are designed to identify and verify the source of the funds used to buy the property, as well as identify criminal activity such as laundering and terrorist financing. This is usually done by reviewing bank statements and payslips. They will also verify your identity; this will be done by using your passport or driver's license, checking the document's legitimacy and comparing the information with the proof of funds supplied; this is called due diligence. We have written in more detail here about verifying identities and what it entails. 

How Long Do Anti-Money Laundering Checks Take?

The method that the firm uses will determine how long the money laundering checks take. Manual checks take considerably longer due to the time that is taken to go through the documents and search for revenant information such as company structures and ownership. But when digitalised, the process can be done unto 8x faster, taking only a few minutes for the checks to be conducted in the background. You can also find more information about how long anti-money laundering checks take here.

Why Ask For Proof of Funds?

Real estate agents will ask for proof of funds from a potential buyer for two main reasons: to ensure that the buyer has the financial means to offer and purchase the property. This is so that the seller doesn't waste their time negotiating with someone who doesn't have the means to pay.

The second and the most important is to verify where the money has come from. Proof of funds checks allow real estate agents to search through bank statements and savings accounts as part of the anti-money-laundering checks they perform; any suspicious activity will be reported and investigated. 

As these checks are required by UK law, if an individual or an organisation refuses, It is more than likely that they will not be able to purchase the property.

What Can I Use as Proof of Funds?

With the advancements in technology, providing proof of funds has become quicker and as more straightforward than it has ever been. With the introduction of open banking, it's become as easy as clicking a few buttons on your smartphone, and you're done. 

However, not all estate agents are utilising this technology that is designed around the highest level of due diligence and compliance, and instead opt for the traditional, manual process, which will, in almost all cases, take longer and cost more. The following can be supplied to determine proof of funds.

  •          A mortgage in principle
  •          A sales contract of a property being sold in which the cash will be used to purchase a new one
  •          Bank statements displaying the deposit amount
  •          Bank statements showing the amount of cash in the account
  •          The previous month's bank statements displayed the build-up of cash
  •          Any evidence of shares being sold
  •          Any evidence of money being given as a gift
  •          Any proof that money was left to you in a will

Going through any of these can take quite a bit of time, which often leads to frustration for the buyer and seller. Current tech Solutions on the market will mitigate this through the use of open banking; these documents are collected and screened digitally, not only making this process faster but safer.

Conclusion

Verifying your identity through the due diligence process and your proof of funds through the anti-money-laundering process is unavoidable when buying a house. However, the length of time these checks take can be much quicker and more accurate. And remember, going through anti-money laundering checks when buying a house isn't something to be scared of - it's a regulatory requirement for all firms!

At Validient, we have built a digital verification platform that verifies identities quickly, saving time and money for regulated businesses but delivering a great customer experience for clients, increasing retention. With the technology available on the market, going through these checks when buying a house is much quicker and safer using digital software. Book a demo with us today or email us at info@validient.com.

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