FSA to review 20 lenders’ fraud systems

The Financial Services Authority is to visit 20 mortgage lenders to check they have adequate anti-fraud systems in place.

Margaret Cole, director of enforcement and financial crime at the FSA says one reason mortgage fraud became so prevalent during the boom years was because sales targets and incentives led to lending decisions that were not in the long-term interests of lenders.

Speaking at a British Bankers’ Association conference, she told delegates that in extreme cases it saw cases of bank staff effectively colluding with customers to mislead their employers into granting a mortgage.

Cole says: “As part of the thematic review we are visiting 20 retail lenders to examine whether their internal systems to manage fraud risk are sufficiently robust and to ensure incentives offered to salespeople do not undermine efforts to contain fraud.”

The results of this review will be published next year.

It has banned nearly 100 mortgage brokers for failures related to mortgage fraud since 2008 and has imposed penalties of over £2m.

The FSA welcomes the initiative to allow the Inland Revenue to share information with lenders.

Cole says: “The power of income verification in combating financial crime was illustrated by a pilot scheme run by Her Majesty’s Revenue and Customs last year. This scheme allowed lenders to check whether income details supplied on mortgage applications matched the data held by HMRC.

“During the pilot over £111m worth of mortgage fraud was prevented.”