At its recent annual Financial Crime Conference, the FCA spelt out its expectations regarding financial crime. Attendees were left in no doubt that the FCA is looking to be more proactive than the FSA ever was.
The regulator confirmed that financial crime prevention is central to its agenda and is very much key to the objective ‘To protect and enhance the integrity of the UK financial system.’
To deliver this objective, the FCA is looking for firms to have sound systems and controls in place; in terms of financial crime specifically, this means firms must be able to identify financial crime risks. For example, the FCA expects firms to know who their clients are and where their money comes from; in addition we have all been aware of lenders putting tighter and tighter controls in place.
So how do you protect your business, deliver on ‘know your client’ and avoid the typical fraudulent application scenarios?
The reason that self certification mortgages were abolished was to help to get rid of the risk of borrowers over-stating their incomes. Despite this, some potential borrowers continue to attempt to inflate their income while others will claim fictitious employment or rates of income.
Let’s be clear, this is not just ‘pushing it a bit’ this is fraud and any broker found allowing this to happen, or worse still, endorsing it, runs the risk of losing their livelihoods.
Awareness and prevention comes from document collection and thorough checking, this means comparing payslips with bank statements. If the profile does not match, telephone the employer and use the internet to validate what the client is telling you
Undisclosed credit is another common fraud; this usually goes hand in hand with hidden addresses, which may also be linked to an undisclosed or hidden adverse credit history. Even though your client may not make you aware of these, it is for you to be confident that there are no such skeletons in the closet.
You can do this by obtaining a copy of the client’s credit file and by reviewing their address and voters roll history, as well as assessing their loan commitments and repayment record.
A third type of fraud is occupancy fraud or scheme manipulation; of course different mortgage types, such as buy-to-let, will attract different lending criteria and interest rates than a standard residential mortgage.
Manipulating the mortgage type to suit more favourable loan conditions and so circumvent the relevant credit score, LTV or lending policy is clearly unacceptable. Precise has rightly announced recently that brokers will be struck off for repeatedly placing what should be residential applications as buy-to-let cases.
Avoiding this type of fraud is simple: use your common sense, ask whether it is realistic for the client to be earning what they say they are, given the job they claim they are doing. Also investigate how they have accumulated their deposit, where they are buying and why and whether a property of this type, in this area, fits with their profile.
Finally, be very aware of who you are getting your business from. Market contacts can be a great source of business, but some introducers might also attempt to place fraudulent cases through your business. Tactics to catch you out can include the introducer contacting you out of the blue to place clients with you, accompanied by a reluctance to sign any paperwork.
All too often the parties involved wait to see how it goes and in time the need for such documentation is forgotten. Such contacts may look to deal with the client exclusively and may even attempt to influence the choice of product, lender, valuer or solicitor.
Keep your wits sharp with introduced business – always complete appropriate due diligence on the person introducing the business to you, especially if they have come to you unsolicited. Also complete an agreement and pay close attention to the clients passed to you, it could be that the first two or three cases are legitimate and then when your guard is lowered some more dubious cases will be passed to you to see if you notice.
Don’t be self-conscious about conducting the necessary checks. After all it is your business and your livelihood that will be lost if a fraudulent case slips through the net.
Finally remember the old adage: ‘if it seems too good to be true, it probably is’.