The aftermath of the 2007 financial crisis starkly revealed the
extent to which the mortgage and short term lending industry has,
and continues to be, affected by mortgage fraud. The scope of
what constitutes mortgage fraud is wide, but one factor arises
consistently; the complicity of dishonest or incompetent
professionals and advisors in assisting fraudsters achieve their
aims and their failure to take adequate steps to properly identify
their client.
Lenders can reduce their susceptibility to becoming the victims
of fraud by instructing professionals who have a recognised
expertise in the industry and have robust anti-fraud and money
laundering systems in place. What therefore should lenders consider
when selecting their advisors?
The First EU directive on money laundering led to the passing by
parliament of the Money Laundering Regulations 1993 and introduced
the concept of "Know Your Client" or "KYC". Subsequent legislation
has refined KYC but the basic principle requires not only original,
recent and adequate evidence of Identification (a requirement now
widely familiar within the industry) and also an understanding of
the nature and circumstances of both the client and the
transaction. It is this second requirement which Lenders should
ensure their advisors operate effectively in addition to simple ID
checks.
The Money Laundering regulations 2003 contain requirements for
the appointment of a Money Laundering Reporting Officer, reporting
procedures and the provision of training to relevant staff in
identifying potential cases. Prudent lenders should enquire as to
what training has been provided to an advisor's staff members and
when that was last updated. It is ultimately however expertise and
familiarity with the industry which will allow an advisor to
identify suspect cases.
In relation to small scale mortgage fraud such as providing
false information in an original loan application relating to
the financial circumstances of an applicant, or the use to which
the property will be put. Lenders should seek specific confirmation
that the advisor is not aware of anything which contradicts either
the loan application document or the property valuation. Lenders
can assist by providing the two documents at an early stage in the
transaction.
It is however large scale mortgage fraud which causes the
highest value loss to Lenders and it is in this area that Identity
theft has become one of the most common risks
Where the borrower is also represented by the Lender's advisor
then the KYC checks referred to above must of course be carried out
by that advisor. Additionally at Philip Ross we have a stated
policy of carrying out a Call Credit search and a Google search
against each individual. The Google search whilst a simple tool,
has already identified two individual cases of potential fraud
where Philip Ross declined to act. This combined with training
allowing members of staff to identify potentially suspect matters
such as unusual settlement requests or inadequate responses
to source of funds enquiries is the first defence in combatting
mortgage fraud.
Where the borrower is separately represented then the Lender's
focus should shift to ensuring that the borrower's advisor has
carried out the correct KYC checks. This might involve specifically
requesting a borrower's solicitor to confirm that they have
personally certified the original I.D for their client.
Additionally, an online search should be carried out with that the
borrower's advisors regulatory body (for solicitors the SRA) that
the advisor has proper accreditation. Again industry
familiarity is key; knowing the borrower's advisor is part of a
long standing and reputable firm is invaluable as is an existing
working relationship with that firm.
In the global marketplace a familiarity with the requirements
relating to the Identification of overseas investors is also
paramount. The Lender's advisor should have knowledge of the third
EU directive on Money Laundering, governing which EU and EEA
advisors can certify I.D documents to the level required by law and
further which nations outside the EU or EEA have arrangements in
place accepted as equivalent to the EU third directive. Enhanced
care should be applied where dealing with a nation with a known
reputational connection to Money Laundering, Fraud and Organised
Crime.
In conclusion, whilst no stated policy can completely guard
against mortgage fraud and identity theft, choosing an advisor with
a thorough knowledge of both the industry and how to implement the
relevant Anti - Money Laundering legislation, will give a Lender
the best prospect of avoiding becoming a victim of mortgage
fraud.
Alun Williams is the Money Laundering Reporting Officer (MLRO)
within the firm. Philip Ross has a specialist mortgage and secured
lending department headed by Jane Fisher. For more information
please contact alun.williams@philipross.com or jane.fisher@philipross.co.uk