As you are all very hopefully aware the 2020 NSW licensing reforms come into effect on 23rd March this year. Here we summarise the changes that are coming your way, what you need to do to prepare and how it will affect you.
The 2020 NSW Licensing Reforms in Brief
What Has Changed?
- There is now a requirement to have a separate trust account for sale and rental monies
- Only licensees can approve trust transactions
- You must nominate one person to be the licensee in charge of each corporation
- Agents must have Owners approval for withholding funds at EOM
What Has Prompted these Changes?
- A rise in trust account fraud
- Depletion of NSW compensation fund with claims made in 2017 & 2018
- An effort to regulate the industry and protect consumers from monetary loss
How Will It Affect You?
- The Property Manager or Trust Accountant no longer able to approve trust payments
- 3rd party service providers will not be able to approve trust payments
- Token devices for approving payments will need to be removed from staff members
- Other Directors cannot sign trust cheques even if they are a signatory on the account
What Do You Need to Do?
- Be ready for the changes
- Appoint nominated licensee by 1st March
- Register new trust with OneGov (if needed)
- Open trust account with the bank (if needed)
- Update software subscription (if needed)
- Update policy and procedures manual before 23rd March
When Do You Need to Implement these Changes?
- Aim for the 1st March to allow enough time
- Leave it no later than 15th March
- Be ready to go with new processes for payment approvals by 23rd March
- Have your policy and procedures manual updated by 23rd March and ensure staff are notified
What Happens if I Don’t Implement these Recommendations?
- You can expect breaches for non-compliance
- Fair Trading can, and will, inspect physically or remotely to see if you’ve adopted the changes
- Your own auditor has an obligation to report agents that have not met the new regulations
Is There a Work Around?
- Agents practising sales can use the Vendors solicitors trust account to hold deposits to avoid associated running costs. This, however, is not possible with rental trusts
- It is not recommended for a solicitor to hold funds as this carries risk. The agent controls the deposit release upon settlement which establishes trust with clients.
- There is no workaround for the licensee avoiding approving payments from the trust account
How Will Fair Trading Know?
- Fair Trading cannot visually see your trust account transactions from the bank. But you can be asked to provide a documented workflow for trust account payment approvals
- Your login to your software shows a digital trail of who is uploading and approving payments
- If you cannot demonstrate how payments are approved
How Can We Help?
The End of Month Angels team can help you prepare for the upcoming licensing reforms in the following ways:
- Migrate trust balances from a combined trust to separate trust and record balances in new software profile
- Provide inserts for policy and procedure manual which override previous regulations
- Provide guidance on the opening of your new trust account for sales
- Notify you regularly for best practice by subscribing for future alerts
- Phone support
- Trust Account health checks
Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 23 years industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.