Lenders must lead fraud defence

The only way lenders can combat fraud in the conveyancing market is to set up their own control system. Web-based data checks, information sharing and visits to premises would allow them to vet, approve and moniter conveyancers and restore trust in the process

MARK BLACKWELL, Managing director, xit2
MARK BLACKWELL, Managing director, xit2

The Financial Services Authority said in June that it wants to see lenders manage their third parties better.

The regulator’s thematic review warned that lenders’ failure to share data with each other was hampering their ability to detect and stamp out mortgage fraud.

This is particularly dangerous in the case of the lender-conveyancer relationship, but three months later the industry has still to come up with a method that’s acceptable to all parties.

Lenders have to rely on conveyancers to safeguard their interests and fraudsters often use a solicitor at the core of the fraud to direct and reassure other professionals acting at the periphery.

In the face of a conveyancing market that has become plagued with fraud, the Law Society set up the Conveyancing Quality Scheme to provide a recognised quality standard for conveyancers.

Lenders would benefit from a scheme that creates a trusted community of conveyancers that can be used across the industry

Membership is supposed to confer a level of credibility to lawyers with lenders. Firms are supposed to adhere to good practice management standards as well as prudent and efficient conveyancing procedures.

According to the Law Society, the scheme will also create a trusted community that will deter fraud. That’s true, but only up to a point.

If the industry is to ensure conveyancer panels are of a higher standard it cannot rely on potentially self-interested professional bodies. Although a quality kitemark like the CQS is important, lenders need to set their own standards. They need to ensure conveyancing fraud prevention is something they administer themselves.

To do this, lenders have to bring the selection of conveyancer firms under their control.

This is where the CQS falls down. It is not enough in isolation and it has created a dysfunctional conveyancing market where individual lenders are using ad hoc methods to try and stamp out fraud themselves.

Lenders would benefit from a scheme that creates a trusted community of conveyancers which can be used across the whole industry. It would need to garner industry-wide support and complement existing schemes like the CQS.

A secure web-based service which sends lenders information about their conveyancers would help lenders to detect fraudulent trends, and would allow them to share information.

Lenders should combine the use of technology with physical visits to the firms on their panels to tackle conveyancing fraud.

The best fraud tools use web-based systems to return information about their conveyancer firms, and they can do it in a specific format.

Continuous data checks, where information is returned to the lenders through one secure system, will provide greater transparency to the process of panel management. Web-based exchanges allow lenders to instruct a case and view case milestones clearly.

This should be used in tandem with a physical visit to the conveyancer’s premises to check professional indemnity insurance and passports are in order, which will prevent misappropriation, firm hijacking and identity fraud.

Once this initial on-site data check is complete, lenders should use audit and fraud tools to return a continuous flow of information that will allow them to monitor the firms that make it past the initial vetting.

This will improve lenders panel analytics and allow them to identify fraudulent conveyancers more easily. It will also enable them to instruct cases and build up a clear audit trail of case milestones.

This breed of technology can help lenders standardise the management of risk in their conveyancer panels, rather than trying to come up with ad hoc solutions of their own.

If lenders get better information about the conveyancer firms on their panels, it will foster a greater sense of confidence in the solicitors they decide to retain.
It will help honest and diligent solicitors by potentially reducing their insurance premiums and cutting operational costs.

They will also gain access to more lenders’ panels by being thoroughly vetted in the registration and validation process.

It’s imperative that lenders are able to distribute instructions to solicitors based on a series of pre-agreed allocation rules.

Audit and fraud technology can track the solicitors’ work and bring third-party oversight to the conveyancing process and ensure their internal controls aren’t compromised. Lenders need to be able to review live cases while they are being processed.

They also need to track property churn. The best fraud tools will allow lenders to investigate conveyancer activity by instruction, comparing instructions and cross-checking them against a range of fields, such as the applicant’s name, their contact number, and the property postcode, to confirm whether there are any matches.

If lenders have access to better data, pulled together in a single, flexible, web-based system, they will find it easier to manage their panels and detect fraud. You can’t manage what you can’t measure, and better data often means better management of a business.

Lenders are crying out for a service that creates a secure community of conveyancers for the whole industry. But the adoption of conveyancer fraud technology shouldn’t be seen as a replacement for the CQS. Far from it. Instead, it means working alongside the CQS, rather than competing with it.

Lenders need to be able to communicate securely through a web-based system, allowing them to share data. This will demonstrate to the FSA that they are serious about collaborating in a bid to get tough on third party fraud. Importantly, it will also limit any acrimony felt between lenders and conveyancers.

Lenders need to heed the regulator’s advice and be prepared to grasp the nettle and defend against conveyancer fraud themselves.