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November 22, 2016

Why fraud management is a vital characteristic of a dependable lender

During the first six months of 2016 a financial scam was committed, on average, every 15 seconds, according to recent figures from Financial Fraud Action UK. That represents a 53% rise year-on-year, with these scams coming in all shapes and sizes. Furthermore, a staggering 56% of UK organisations have been affected by fraud in some way, and it is one of the biggest risk concerns facing board members.

The mortgage market is no stranger to financial frauds. Recent years have seen fraudsters raise their game in identifying weak spots within the transaction chain, so lenders are duty bound to do more in order to keep them at bay. Effective fraud management and lender dependability go hand in hand.

Reducing fraud risks: best practice

Lenders face a tricky balancing act between implementing effective anti-fraud measures, which address concerns about the risk of identity theft and online fraud, while still offering a frictionless customer experience.

Awareness, data and having the right systems in place is a crucial tool in the fight against financial services fraud. Fraud savvy lenders will be members of CIFAS, which is the UK’s leading fraud prevention system. It gives firms access to the fraud data collected by government agencies, the police and other industry firms. Ideally that membership will be a supplement to the use of SIRA (Synetics) and other data providers which give enhanced insight to ID verification, including Sanctions, PEP (politically exposed persons) and Adverse Media. And crucially lenders need to provide quality training to underwriters on the risks faced by fraud.

These data feeds, along with Equifax Insight credit data, are a very powerful resource, supplying a range of data on mortgage applicants and how accurate the information they have supplied truly is. It’s crucial that lenders engage with these data feeds, and add in their own information in a structured way. The richer those structured data feeds become, the more they benefit everyone across the industry.

Humans first, tech second

However, the data can only do so much. There is no single algorithm that can look over that data and then decide if the application is credible and transparent. It’s also vital therefore to employ quality and experienced underwriters who know how to cast a truly critical eye over all application data.

There is great potential for technology to bring improvements to the mortgage market, but that technology must be there to support manual decision-making, rather than replace it. Technology for technology’s sake must be avoided. Instead a risk-based approach should be adopted.

Zero tolerance

In the short-term finance world, some of the attempted fraud focuses around buying the property under value for reasons which aren’t transparent. There can be good reasons for securing a property for less than it is worth of course, but there are also cases where borrowers attempt to keep lenders in the dark about the true nature of the transaction.

Ultimately fraud management comes down to each individual lender, and the checks they carry out. If you want to build a sustainable and scalable business, then you need to demonstrate in word and deed that you are lending responsibly.

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