The FCA’s thematic review of firms’ mortgage fraud systems and controls published in June 2011 identified a number of good and poor practices.
Guidance from the review has been consolidated within the regulator’s Financial Crime: a guide for firms, which provides guidance on how firms can assess and improve their approaches to meeting legal and regulatory obligations with respect to financial crime.
Examples of practical steps firms can take include:
1) Governance, culture and information sharing: firms should consider how management information can be used more effectively across business areas and cross-industry to help mitigate fraud risks.
2) Applications processing and underwriting: firms to consider how applications are risk assessed and whether the appropriate resource is in place to identify and mitigate fraud risks.
3) Mortgage fraud prevention, investigations and recoveries: fraud risks should be considered during the development of new mortgage products and reviews of existing mortgage books undertaken to identify fraud indicators.
Consent should always be sought from the National Crime Agency to accept mortgage payments when fraud is identified.
4) Managing relationships with third parties: consider centralising responsibility for managing third-party relationships and carry out on-going due diligence checks.
5) Compliance and internal audit: firms should assess whether their compliance and internal audit functions are adequately trained and are regularly monitoring the adequacy of customer on-boarding arrangements, the application process and the management of third party relationships.
6) Staff recruiting and vetting: firms should take a risk based approach to managing staff vetting and consider using tools such as credit and criminal record checks and CIFAS.
7) Remuneration structures: firms should consider whether remuneration structures could incentivise behaviour that may increase mortgage fraud risk.
8) Staff training and awareness: financial crime training should deliver clear messages about mortgage fraud and role specific training should be provided to staff closest to the issues.
It is also hoped that the Mortgage Market Review changes that came into effect last year should help crack down on this type of activity.
Mark Spiers, head of wealth at Bovill, says he has so far seen no evidence of any actual impact, but that the new rules should make it harder for individuals to obtain a mortgage under false pretences due to the increased stringency of checks.
Therefore he says he would expect fraud to have fallen since the Mortgage Market Review rules were introduced.
On the other hand, Mr Spiers says the more stringent affordability checks brought in by the MMR has made it more difficult for some people to obtain a mortgage legitimately, so some individuals may be tempted to provide false or misleading information in order to get on the property ladder.
This could include, for example, ‘gaming’ the system by seeking buy-to-let mortgages, which are not subject to the rules or affordability checks, for residential properties. Concerns were raised when the MMR came into force, but there is little evidence of a groundswell of such cases.