Does the Sourcing Package You're Paying For Cover You?

May 20, 2024


Companies Offering Compliance Coverage

Before we dive into the story, let's give you some background.

If you haven't come across one already, there are a lot of companies in the UK advertising to sourcing agents that they will provide them with 'full compliance' -  insurance, HMRC registration, documents - the works, you name it - for a chunk of money each year or monthly fee. 

This is pitched as making life much simpler and quicker for property and deal sourcing agents, so all you need to do is pay to join and they will get everything sorted for you. 


Through these third party compliance companies, you are essentially "fully covered" without needing to spend the time sorting registrations and insurance yourself, so you can go on your way operating and converting deals. Fantastic!


Is there a catch? Well, we are hearing from sourcing agents each week who are either considering this route as it seems simpler and cheaper than having to carry out compliance yourself - but they have doubts; or are already signed up to one of these companies and have big doubts. 


So, let's jump to the story...


Sourcing Agent Red Flags

Recently a sourcing business joined NAPSA and started completing the registration form - used to check an agent's compliance and make sure everything is set as it should be to meet national minimum compliance standards. 

The sourcing business was very open that they were part of a third-party company providing sourcing compliance, and through this company they had been provided with proof of registration, insurance and documents they needed. 

When it came to the 1:1 report and checks carried out by the NAPSA team, they spotted a number of red flags:


1. HMRC AML Registration had been submitted under the third-party compliance company's name AND NOT the sourcing business registering with NAPSA. 


2. Their insurance was a default policy that hadn't been adapted for what the sourcing business was actually carrying out.


Following these finds, the NAPSA team advised the sourcing business to pause all payments to the third-party company whilst an investigation could be carried out.  


HMRC's Response

HMRC's AML Team was the first check, to get an understanding from them as to whether this registration covered the sourcing business. 

They came back quickly, noting that for a company to register for AML supervision on behalf of another company it was to be via one of two options:


Option 1: You're Contracted by the Company

This means that you are employed as a contractor through the company - so they can dictate your role, what you're doing, when you're doing it, and they pay you for the services provided. 

In order to meet this criteria a great deal of control over how the sourcing agent works, when and what is expected of them has to be demonstrated.


Option 2: Sub-Agents

The second option is where you have a 'core or main company' which in our example story above would be the company that a sourcing agent pays a fee to for their full or part compliance.


This core or main company works with 'sub-agents', in our story would be the sourcing agent who has paid the fee.


In order for this to meet standards and everyone be covered the following MUST be in place:


The core or main company MUST be fully compliant.

The core or main company MUST register each sub-agent with HMRC, under their own registration as 'sub-agents' of theirs, providing each sub-agents operating address and contact information and paying for each sub-agents registration.


HMRC have provided an email (we have redacted contact and company information for obvious reasons), however this outlines exactly what HMRC are saying: 



What Are Your Options?

Based on HMRC's response and guidance, it means that if you plan on working with another company to cover your compliance, either in part or in full, you have to be either, contracted and controlled heavily by them, act as and be registered as a sub-agent, or bite the bullet and get full compliance for yourself, so that you are sure that you are covered.


Our advice...register your own business with HMRC.  Take responsibility for your own business, it doesn't take that long and it doesn't have to be that difficult.


Since chatting with HMRC's AML team, they have advised our team at NAPSA, not to just accept anyone through who doesn't have their direct business and address noted on the registration confirmation sheet and carry out in depth checks on all documentation to ensure cover is actually provided.


Insurance Expert's Response

The team also checked with our experts at Insurance-Desk to check whether the default policy would cover this sourcing agents, and potentially all other agents who would also have received the same document. 

Unfortunately, it was also deemed that the policy would not be fit for purpose. The sourcing agent hadn't been asked when joining and paying a fee, any questions about their business or services such as: 


  • How many directors or employers are in the sourcing business
  • Any indemnity claims in the past 5 years
  • Would the business be undertaking any project management or refurbishments for clients


The third-party compliance company had failed to check with the sourcer any of the above + standard insurance questions to create a bespoke policy.

Instead, the default policy likely wasn't fit for purpose and the agent had potentially wasted money. 


What Should You Do Next?

We aren't saying that all compliance providers are providing a poor service. It's really going to be a case-by-case basis - however, if you have joined an organisation that provides your registrations and insurance for you, we would heavily advise you investigate further. 

Make sure you have a copy of the documents. Does the registration mention your company and address? Do the insurance policy specify what you'll actually be doing in your sourcing business?


If you haven't joined yet, ask them for proof that the insurance will cover them for all their business activities (every company is different, from R2R to £1m+ developments) one policy will not cover all!


Ask for confirmation that they will register you as a sub-agent with HMRC and pay the fee for that.  Then if you join ensure that you check that this has been done!


If you have doubts, we are available for a call - it's worth checking rather than finding out what you've been paying for isn't covering you at all. 

Book a free chat here to walk us through: