Lenders have to be constantly vigilant against fraud, and last year we put a lot of work into seeking to help firms protect themselves against criminal activity. Combating financial crime will continue to be a high priority in 2009. We have been working to:
reinforce best practice across the industry;
help firms identify the risks they face individually; and
improve the flow of information between lenders, the police, regulators and other industry professionals.
With house prices falling and lenders upholding more cautious lending criteria, it is more difficult for criminals to try to exploit higher loan-to-value lending. But fraudsters simply tailor their methods to prevailing market conditions.
The market downturn puts pressure on people in a variety of different circumstances, creating all sorts of opportunities for exploitation and criminal activity. These include:
borrowers who, finding it difficult to get a loan given the credit shortage, might be tempted to inflate their incomes to meet tighter lending criteria or to back up their mortgage applications with bogus documents;
small-scale builders and developers who might be tempted to offer hidden discounts or other incentives to try to reduce the glut of properties on their books; and
borrowers in difficulty who remain unprotected from potential abuse by unregulated sale-and-leaseback firms that may try to buy up property at rock-bottom prices.
Measures to improve information-sharing and the spread of good practice were at the heart of our mortgage fraud action plan last year, and we aim to build on that in 2009. With changing market conditions leading criminals to target lenders in different ways, sharing information remains crucial in combating their activities.
We will therefore continue to work to improve the flow of information between lenders, police, the Financial Services Authority (FSA) and other industry professionals, including conveyancers, surveyors, solicitors and accountants.
Last year, we helped the FSA to re-launch the ‘information from lenders’ initiative, targeting suspected fraud by intermediaries. We are now encouraging more firms to contribute to the scheme, which provides a highly effective channel through which lenders can report their concerns about potentially fraudulent mortgage applications coming from brokers. By looking at information from a variety of sources, the FSA has been able to take decisive action against the relatively small number of fraudulent brokers.
Since it was re-launched last summer, more lenders are contributing to the scheme and there has been a 25% increase in the overall number of reports to the FSA. We have been pressing the regulator for more feedback on how it is using the information it receives, and the FSA is now doing more to keep lenders informed about what it is doing, including the decisive action it has taken against some criminal brokers who have been forced to leave the market.
We are also continuing to develop our relationship with the City of London police, now the lead force combating financial crime. Here again, we can play a key role as a conduit between police and firms, trying to make sure that officers get the information they need and that they also understand the pressures that lenders themselves are under. We want to build on our work with the City of London police and roll it out to other forces across the country through the Association of Chief Police Officers.
The successful ‘information from lenders’ project should also be implemented by other professionals in the industry. We are therefore currently in talks with the Royal Institution of Chartered Surveyors, the Solicitors Regulatory Authority and the Institute of Chartered Accountants in England and Wales to see if similar schemes can be set up targeting practitioners suspected of fraud. We are also continuing to share with lenders our understanding of the new fraud risks they face.
Individual lenders do, of course, have their own measures for combating fraud, reflecting the risks they face as a result of their particular business plans. There is no conflict between that work and their support for an industry-wide commitment to better information sharing and fraud prevention. We will continue to help the industry combat fraud as market conditions evolve in 2009.
