It seems fraud is on the increase. You don’t need to look far before identifying one of the many reports with eye watering statistics showing the high cost of fraud. These costs are estimated at more than £1bn annually for mortgage lenders, with detection rates for mortgage fraud currently at less than 1%.
Are these statistics surprising? Perhaps not when you think about the key characteristics associated with the mortgage market:
- The high value of mortgages and the fact that they are generally the biggest investment consumers will make in their lifetime
- The number of parties involved in the buying and selling process
- The infrequent nature of the transactions and consumers’ general lack of fraud awareness - given these unique circumstances, it is unlikely that mortgages will ever stop being a tempting target for fraudsters
Are firms therefore doing enough to combat fraud?
Fraud risk management, including first and third party fraud, is clearly a key agenda item for firms. However, firms need to ensure controls are varied, regularly reviewed and updated to identify and prevent both existing and new threats. Embracing technology and data, combined with more traditional detailed testing, root cause analysis and training, is key to a more preventative and proactive approach.
The regulator’s focus on fraud presents an additional challenge for firms to ensure robust fraud risk management, with a clear focus on mitigating instances of consumer detriment, and striking the correct balance between robust fraud controls and customer experience. It is interesting to note that overly-prescriptive financial crime risk management was recently cited as a potential barrier to accessing financial services by the regulator.
It is important for the industry that all stakeholders ensure that preventing the rising cost of fraud is a top priority and is taken seriously right at the very top of the organisation. Reducing fraud through robust detective and preventative systems requires investment which can serve to increase the low detection rates, and with the right key performance indicators and ongoing monitoring, should demonstrate the business case for ongoing activity in this area.