Brokers a main source of fraud risk, say lenders

Mortgage lenders have identified third parties such as solicitors, brokers and valuers as being among the main sources of fraud risk.

It follows an FSA thematic review of lenders' systems and controls, which concluded that, while there were examples of good management of fraud risks, it also identified "weaknesses common to many firms".

In particular, it identified vulnerabilities in relation to the management of third party relationships and the resourcing of frontline fraud prevention areas, such as firms' underwriting and anti-fraud teams.

However, a number of lenders told the regulator that third parties, including brokers, were the main source of fraud risk.

The FSA said that, while there have been improvements in lenders’ oversight of relationships with solicitors, there is scope for significant improvement in how lenders manage relationships with brokers.

It also said it was concerned that some lenders relied solely on a mortgage broker’s entry in the FSA Register to vet them.

"Checking the FSA Register can be the first step of a due diligence process but it cannot be regarded as sufficient to provide complete assurance," today's paper reads.

"Recent FSA enforcement action has shown very clearly that even FSA approved brokers do not always act with integrity or take steps to mitigate mortgage fraud risk.

"Lenders must take steps to satisfy themselves of a broker’s suitability on an ongoing basis.”

FSA investigations into misconduct by mortgage brokers have led the regulator to ban more than 100 individuals from working in the industry - and to impose more than £2m in fines - since the beginning of 2009.

Today's findings were discussed at the FSA's financial crime conference.

The Financial Conduct Authority (FCA) is set to assume the FSA's responsibilities on financial crime.