The regulator expects lenders and brokers to take responsibility for ensuring their business is not vulnerable to fraud.
In relation to brokers and advisers, the FCA has made clear that it expects firms to operate controls which would be sufficiently robust so as to prevent fraudsters using services to process fraudulent transactions.
In practice and as per the previous article in this guide, this means ensuring intermediaries used are subjected to rigorous due diligence and that transactions are subject to effective scrutiny.
A spokesman for the FCA states: “It is essential that, as a mortgage broker, you have sufficient controls in place to prevent your firm being used for committing fraud.
“You should also remember you are responsible for reporting any wider suspicions of fraudulent activity, or examples of poor practices resulting in potential fraud you have noticed. This is in addition to your statutory duty to report suspicious activity.”
On lenders, who are obviously more in the crosshairs in relation to mortgage fraud, in January, the FCA reiterated what it expects from lenders who suspect mortgage fraud. According to the regulator all firms:
• should have robust and proportionate resources, systems and controls in place so they can identify, detect and prevent mortgage fraud;
• should make fraud detection and prevention a key part of their business; and
• should make senior management responsible for managing fraud risks and overseeing the control framework.
According to the City watchdog, fraudsters and rogue intermediaries use their experience and knowledge of the market, plus loop holes, differing lending criteria, and checks and balances in the underwriting process.
The regulator states lenders must make sure their firm is not solely targeted because of “easily exploitable flaws in processes.”
The FCA states it holds lenders responsible for weak fraud controls and will forcefully pursue any poor systems and controls by supervising more intensively and using enforcement action where appropriate.
To tackle mortgage fraud, in 2006 the FCA introduced ‘information from lenders’ (IFL) referrals, for which it published greater detail in January of this year.
Using IFL reporting forms, which can be found on the FCA website, lenders are expected to tell the FCA about intermediaries they suspect of being involved in mortgage fraud.
Over the last four years, IFL has generated 700 alerts about mortgage intermediaries. The regulator has opened 100 enforcement cases, which has resulted in 80 mortgage intermediaries being banned and fines of more than £1m.
The scheme is voluntary, but the FCA has stated that it expects “lenders to help us win the fight against financial crime.”
Lenders considering making IFL referrals are told it would be “helpful” for the FCA to receive fully investigated cases, in which the complicity of the intermediary in the fraud has been proven.
However, the FCA states it recognises it can be difficult for lenders to complete a detailed investigation in every case and has issued guidance that may help in this process.
Back in June 2014 the FCA stated referrals should fall under one of the following categories:
1) The lender removed the intermediary because of his or her own mortgage applications.
2) The lender removed the intermediary because of his or her clients’ mortgage applications.
3) The lender has either proof or is suspicious that the intermediary is being used as a conduit for the purpose of financial crime.
emma.hughes@ft.com
