Out of the 46 firms that conducted mortgage business the FSA found that 19 firms – 41% – obtained income verification and 19 obtained two forms of identification.
Only five firms gathered evidence of an applicant’s source of funds and only three firms said they obtained specific Know Your Customer information as part of the FSA’s financial crime reporting requirements.
The FSA launched the project in April 2008, aimed at establishing the extent to which small firms across the financial services industry addressed financial crime risks in their businesses.
The regulator said most firms were aware of potential suspicious indicators when conducting mortgage business, such as customers having difficulty verifying income and individuals who hold a PAYE job applying for self-cert mortgages.
The FSA says most firms indicated that when requested they would make Know Your Customer information available to lenders, however lenders rarely asked for it.
Less than half the firms said that they would find out why a mortgage application had been declined as lenders were reluctant to disclose such information.
In its review, the FSA also says: “We noted that some small firms, particularly sole traders, had difficulty in aligning their financial crime systems and controls to the legislative and regulatory requirements.”