How to identify and defend against financial crime

CPD
0.5
Nick Parker Head of intermediary distribution, Aldermore
|
2nd August 2021
fraud investigation crime

The learning objectives for this article are to:

  • To be able to identify the types of fraud relating to mortgage advice
  • To be able to identify the enablers of financial fraud
  • To be able to name some ways in which an adviser can tackle or prevent fraud 

Covid-19 has presented a challenge for all businesses, industries, and individuals. A huge concern throughout the pandemic has been the proliferation of financial crime and the opportunities that have presented themselves to fraudsters. The risk and instances of financial fraud have increased substantially.

During a period of significant disruption and change, such as the coronavirus pandemic, the risk of fraud and money laundering occurring is heightened. Criminals will actively exploit these difficult times to target vulnerable individuals and businesses for financial gain.

The mortgage fraudster

The most likely fraudster is a desperate clients motivated by the end result – the property or remortgage funds. They may be under pressure, perhaps from a family angle or to do with social standing or they may rationalise that this behaviour is not fraud, but merely a short-term solution.

Professional offenders are rare but dangerous. They’re experienced in financial fraud and have a deep understanding of the mortgage industry. They know how to avoid the controls in place, where the most valuable assets are located and how to extract them.

What are the enablers of fraud?

  • Remote working - Disturbances in normal business processes, controls and working conditions give criminals the opportunity to commit fraud.
  • Government scheme abuse - for example, Bounce Back Loans (BBLs) being used as a source of deposit.
  • Lack of face-to-face contact with customers - this leads to an increased risk of impersonation of others
  • Hijack – this is where a fraudster impersonates the real owner of a property.
  • Financial downturn - The chaos and uncertainty of the pandemic has caused people to rationalise behaviour that they wouldn’t have considered previously in order to make ends meet.
  • Increased risk of Push Payment Fraud - This complex scam is where an applicant authorises a payment from their own account to an account controlled by the fraudster. For example, a fraudster impersonates the solicitor and provides ‘new’ bank details for the applicant to send the deposit funds.
  • False EWS1 (External Wall Fire Review) forms - False certificates have been issued for large blocks of flats nationwide. This is heightened as house moves may be accelerated as a result of the pandemic.

Types of fraud - financial fraud can take several forms

Now you know what kind of scenarios can make it easier for fraud to take place, let's explore the types of fraud that can occur and what to watch out for.

  • Income related frauds - A more common form of fraud, income related fraud for both employed and self-employed tends to mean either false or inflated incomes being submitted.
  • False address history - Fraudsters will want to portray their finances in the best possible way or need to ‘remove’ any previous adverse. Providing an alternative address history may facilitate this.
  • Tax evasion - Evading tax may be seen as an opportunity to increase cash flows. This could be through additional ‘cash in hand’ income; undeclared BTL income; or the transfer of properties and avoiding tax which is due (Stamp Duty Land Tax).
  • Scheme abuse - Fraudsters will increasingly look to side-step income checks, e.g. by concealing a buy to let application as a residential (Back Door Resi)
  • Impersonation - Fraudsters will impersonate genuine individuals or businesses - for example, by setting up false bank accounts or loans in order to build up a credit history for a mortgage.
  • Back door brokers / unregulated brokers - Broker firms previously removed from lender panels, or had their regulated status removed by the FCA may approach an alternative broker for their unscrupulous clients – be aware.

How you can help fight fraud today

So how can advisers be the front line against fraud?

Know your customer!

Are you satisfied your clients are who they say they are? Customer Due Diligence (CDD) is an important step in combatting financial crime (and a regulatory requirement).

Some of the ways you can determine the identity of your client:

  • Identify and verify your client’s identity
  • For Corporate Entities / Special Purpose Vehicles – identify and verify a beneficial owner to understand the ownership and control structure. This may not be your immediate client and could include trusts or similar legal arrangements.
  • Obtain information relating to the purpose and intended nature of the business relationship and transaction – where purchase deposit funds originate / capital raising reasons
  • Open resources – an internet search may reveal background information. Adverse Media articles, Companies House, LinkedIn, Zoopla or Facebook can help to substantiate a client story
  • Do not be afraid to question them about anything unusual – ask for a second opinion if needed

The mortgage broker is the first line of defence against mortgage fraud: it is always better to be overly cautious than not cautious enough.

Both lenders and the regulator expect brokers to have strong processes in place to prevent themselves being used as a route to commit fraud. For example:

  • Conducting ‘Know your customer checks’
  • Comparing documents (e.g. payslips) with other documents (e.g. bank statements) or with what the client has told you, can be revealing
  • Bank statements can provide insight into client’s life – credit commitments, bills, other mortgages

Some final food for thought - did you know that suspicion of fraudulent activity on the part of the client is the most common reason for a broker’s expulsion from lender panels?

 

Now complete the questionnaire below to earn your CPD.

To recap, this article has helped you...

  • To be able to identify the types of fraud relating to mortgage advice
  • To be able to identify the enablers of financial fraud
  • To be able to name some ways in which an adviser can tackle or prevent fraud 
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