Fraud a 'continuing' trend in broking: ASIC

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Fraudsters cost Australia a whopping $372.7 million last year alone - and ASIC says the issue is a serious one within the mortgage broking industry.

ASIC spokesperson, Daniel Wright, says the organisation is seeing a ‘continuing’ trend of fraud within the mortgage broking industry and says it’s the category of misconduct involving brokers that is, in fact, most regularly reported to ASIC.

“ASIC is particularly concerned with instances where persons have engaged in fraud or other misconduct relating to information provided in loan applications. Since the commencement of the NCCP, ASIC has banned six persons from engaging in credit activities for such conduct and has 18 other current investigations. ASIC has also secured criminal charges against one finance broker under the responsible lending provisions of the NCCP.”

But MFAA CEO, Phil Naylor, argues that fraud remains a relative rarity in the mortgage broking industry, accouning for less than a handful of finance industry cases.

“From MFAA’s experience lending fraud occurs, but based on our expulsions – 3 last year - it is clearly not a major issue for brokers. All lenders, aggregators and good brokers have systems and checks and balances to mitigate against fraud.”

Yet, a report released by KPMG last week - the very same week that ASIC clamped down on two rogue brokers - brings the issue to a head.

Finance, perhaps unsurprisingly, boasts the highest fraud rate of any industry in Australia, according to KPMG’s 2013 Survey of Fraud, Bribery and Corruption in Australia and New Zealand. The report found that the financial services industry accounted for 86% of all fraud in Australia and New Zealand in 2012. Twenty-five per cent of fraudsters came from outside the company they victimised.

But who are these dodgy dealers? And what needs to be done to stop them ruining the industry’s reputation?

The answer to the first questions is simple – sort of. According to KPMG, the typical fraudster is male (men are three times more likely to commit a fraud than women), earns less than $100,000p/a (though this is slowly starting to change, with a 92% increase in the number of offenders earning between $100-200,000) and holds a non-managerial position within his/her company.

Furthermore, the KPMG report shows most have a clean criminal background, proving that due diligence, including insolvency, track record and integrity checks, needs to be robust.

“Organisations need to reconsider broadening their integrity screening processes from not only of applicants but also to include agents, suppliers and other business partners, particularly given tightening anti-bribery and corruption legislation around the world.”

KPMG also says the nature of the individual fraudster and the underlying causes driving their illegal activities constantly alters.

“Just as fraud is an ever-evolving phenomenon, the fraudster is like a chameleon, displaying changing characteristics as the environment around them changes…External parties continue to be the bane of the financial services…responsible for the majority of overall fraud by value and by number of incidents.”

The continuing prevalence of third party fraud generates real questions about the application of fraud controls, perhaps suggesting more robust internal frameworks at the cost of less scrutiny outside the front door.

“This strongly reinforces the need for better due diligence around third parties. The trend is less evident in major fraud situations, where internal perpetrators are most likely to defraud organisations. The 2012 survey indicated more respondent organisations were experiencing major fraud by insiders.”

KPMG reinforces the importance of prevention when it comes to dealing with fraudulent activity, saying that staff-screening, developing a corporate code of ethics, renewing/improving internal controls and conducting fraud awareness training are the most popular methods used to nip the problem in the bud.

“The focus on fraud awareness training is particularly encouraging, given the high rate of respondent organisations reporting a low awareness of fraud reporting services internally and externally.”

  • Denise Brailey BFCSA (Inc) on 22/03/2014 12:35:53 PM

    Only 3 % of brokers are involved in fraud. Its the Lenders....of course it is, altering LAFs after they are presented for processing. Major Banks involved in the lion's share a whopping 85%. Tell your customers to ask for the Bank's copy of LA....wait for the shock! Its the lenders that developed the service calculator and ASIC is saying "yes but brokers only have that as a tool if they want to...its not compulsory to use it." On the witness stand ASIC Chief blamed the brokers to the Senators and never mentioned the Lenders....read the evidence 19th Feb. Brokers are being set up. I agree 97% of brokers are good honest people. I told the Senators that fact. Now Industry bods are saying "fraud awareness training" Start with the Bank's copy of the LAF and see evidence for yourself. More than 400 people have complained to Federal Parliament about ASIC about Lenders not Brokers. They have found the evidence. Gallons of white out being used inside the banks.

  • Ralph Rintoule on 11/02/2013 4:22:18 PM

    When you have proof of a fraudulent case nobody & I mean none of the organisations & association want to do anything about it

  • Terry on 11/02/2013 3:42:06 PM

    what about the branch land goons, not just brokers. I smell a cover up here.

  • Maria Rigoni on 11/02/2013 12:22:56 PM

    When the term "mortgage broker" is being used are the accusers referring to accredited loans writers or mortgage managers or both?
    Is this an agenda to justify getting rid of the third party channels?
    Who is making all these reports to ASIC? Do they have any experience in the application and approval process?
    How is the fraud costing Australia $327.7 million? Is that the cost of ASIC investigations?
    Due to market dominance of a few players in the mortgage industry there is an imbalance of power between lenders and responsible borrowers... affordable loans for the average borrower maybe getting to hard to get approved as the big boys only want "vanilla" clients on their books.

  • Mike C on 11/02/2013 11:11:34 AM

    " Finance, perhaps unsurprisingly, boasts the highest fraud rate of any industry in Australia, according to KPMG’s 2013 Survey of Fraud, Bribery and Corruption in Australia and New Zealand. The report found that the financial services industry accounted for 86% of all fraud in Australia and New Zealand in 2012. Twenty-five per cent of fraudsters came from outside the company they victimised."

    So do we then assume that 75% is 'internal' by nature? Having spent 34 years in this industry I can assure you that incidents of fraud are not just solely related to the 'brokers' . I would like to see the current incidents occurring from within the actual lending institutions. A strong sales & target focussed environment/culture could also lead to higher rates of fraud. Fraud or even 'loose' lending practices may not just be initially committed by officers of financial lending institutions for upfront personal monetary gain, it may be to simply ensure unrealistic targets are met?

  • Wishful Thinking on 11/02/2013 9:03:12 AM

    There is a lot more fraud in the finance industry then the MFAA is aware of. It is a fact that the funders do not make this information readily available, and prosecutions are limited due to the time and expense involved. Everyone needs to stop dancing around this issue and report all such matters to ASIC, who are the governing body, NOT the MFAA.

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