Wednesday, 23 October 2013

Conveyancing and Fraud

"Having worked with the mortgage industry for many years developing system-based anti-fraud controls, in particular mitigating valuation risks, the latest area of our research and development programme extends naturally to the area of conveyancing-based risk. 
With an appetite for lenders to apply greater rigour to the entire application verification process, it is important to ensure that appropriate checks are being undertaken at every key stage of the process – from application, through to valuation and conveyancing, prior to completion. Additionally we must ensure that systems are linked to automate as much of this joined-up analysis as possible.
The current workflow for a mortgage application means that by the time a solicitor is instructed, lenders will have already reviewed the loan application and granted the loan in principle. There are however a number of due diligence safe guards undertaken at the point of conveyancing to further limit exposure to risk or potential frauds and our vision is to deliver a seamless system that automatically analyses risk at each stage of the transaction.
Anti-Money Laundering
As well as reviewing a number of warning signs that may suggest a suspicious transaction – such as whether the legal professional has met the client face to face, if the deposit is being paid by a third party, or left over monies from the transaction are being paid to an external party – applying the requirements from the CML Handbook, in addition to undertaking Anti-Money Laundering (AML) checks should help towards identifying fraudulent cases.
Whilst legislative AML guidance exists, there is no benchmark to ensure one AML service is comparable to the next and no specific governance in place to ensure that all parties in a transaction comply with the regulations. Plus, there is no easy way to check if an AML audit has been carried out by each professional in the transactional chain. As such, this leaves gaps in the process and makes it potentially possible for fraudsters to take advantage of the system.
For example, a fraudster may attempt to beat an electronic AML check if they are providing the correct information regarding another person’s identity and have false documentation that incorporates their own photo. It would then be entirely down to the lending organisation to identify other information disclosed in the application that appears to be out of place and therefore raise an alarm to the appropriate parties.
Identity Fraud
Unfortunately, the fraudulent use of identity data is on the increase. The UK’s fraud prevention service, CIFAS, released its ‘FraudScape Bulletin’ in August, which backed-up this very point.
The half-yearly insight into the latest fraud-related trends identified that of the 113,980 cases recorded for the first half of 2013, two out of every three frauds (66%) were as a result of identity theft.
This compares to application fraud (at 18%) and misuse of facility (at 15%). In fact, in the previous year, CIFAS confirmed that over 150,000 cases had an identifiable victim illustrating the true scale of this problem.
When it comes to cases of identity fraud that lenders and conveyancers need to be aware of, typical mortgage cases include examples such as unencumbered fraud. This involves someone attempting to access funds using a property that has no mortgage linked to it. So, this could be an empty property, is part of a deceased person’s estate or perhaps has an absent landlord. The perpetrator, using false identification, seeks to access a low-LTV product and hopes to keep under the radar by applying for a low-risk mortgage, using identification that matches those on the deeds of the property in question.
While the Law Society provides practice notes that offer guidance on how conveyancers can protect themselves against such risks, we are also working with nominated Compliance Officers for Legal Practice (COLPs) within conveyancing firms to assess ways in which the due diligence and AML checks can be automated and integrated earlier in to the risk management analysis process.
By eliminating the loopholes that fraudsters are exploiting we believe that a joined-up approach that electronically evidences the outcome from the varying AML suppliers is an important step forward. Removing paper-based searches and automating the entire process will provide greater assurances earlier in the process.
Alerting Tools
In addition, we are working with a number conveyancing panel managers and third party risk management firms to create new alerting tools that automatically analyse applications at each stage of the process – from applicant, valuation, to legal completion – to provide integrated risk management that systematically checks for discrepancies at every step of a mortgage transaction and links the professionals involved to further guard against 3
rd party involvement.
Based on the latest figures from CIFAS, it would seem that fraudsters appear to have the brazen ingenuity – and downright fearlessness – to continue to deceive lenders by hiding behind stolen identities, and therefore we must continue innovating with new alerting tools and technology innovation that prevents as many attempts to defraud as possible.
As technology continues to evolve, we believe that the tide will start to turn as fraudsters have ever fewer loopholes to exploit due to transactions being made more transparent and key data intelligence being shared from one professional to the next involved in the property transaction."

Richard Groom, Product Development Director, Landmark Information Group

As published in the September edition of Mortgage Finance Gazette magazine

1 comment:

  1. Your blog is really useful for many people I think. Because many times I have found the useful information which was really important for me. Reading this your post was good.

    Conveyancing Sydney