CONVEYANCING


Mortgage Fraud


David Kempster, Marketing Director at MDA SearchFlow, weighs in on the growing problem of mortgage fraud – and its impact on firms’ Professional Indemnity Insurance (PII).


P


rofessional Indemnity Insurance (PII) is currently one of the biggest issues affecting law firms, the Law Society and the conveyancing industry as a whole. PII premiums


have been skyrocketing due in part to the increase in fraudulent activity in the conveyancing sector and beyond. According to an analysis of fraud trends


by CIFAS, the UK’s Fraud Prevention Service, there has been a 14 per cent jump in identity fraud during the first half of 2010 compared with the same period in 2009. There were more than 50,000 victims of impersonation recorded by CIFAS’s 265 members during the first six months of the year, an increase of 22 per cent from the same period in 2009. This means that the identities of 275 innocent victims are being misappropriated every day. Providing false documents to banks and


other lenders is another fast-growing area of mortgage fraud in the UK. In fact, four men were jailed earlier this year for deceiving HBOS and Abbey for funds in the region of £8 million after they bombarded the lenders with false mortgage applications. More cases are likely to


follow; the City of London Police has reportedly been working on 15 separate investigations into organised mortgage fraud networks. You can believe the hype: there is a lot of


fraud going. The current scale of this problem is alarming and CIFAS warns that the it’s likely to get worse, despite a greater awareness of identity fraud. The good news is that most fraud can be


tackled with relative ease. By using appropriate Anti-Money Laundering (AML) and anti-fraud controls to vet both UK and foreign nationals, law firms are in a much stronger position to signpost the risks before disaster strikes, and, therefore build credibility with lenders and the Solicitors Regulation Authority (SRA) in the process. This proactive approach is especially important for smaller firms and sole traders; lenders are increasingly wary of this group in particular. Regardless of their size, however, law


firms need to make a serious and sustainable commitment to following comprehensive anti-fraud policies and procedures, and then – as Nike famously used to say – “just do it”. Although it may


Law firms need to make a serious commitment to anti-fr0aud policies.’


seem daunting, stringent customer due diligence is actually just a series of small, well-defined steps. However, these steps need to be


continually reviewed so that client profiles are regularly monitored for any potential warning signs. Without this approach, we can expect to see PII rise even further, leading to even greater consolidation in the industry, as more and more smaller firms struggle to compete.


ProPerty – high risk fraud area The property market is a high risk area for fraud, a Law Society Mortgage Fraud Practice Note in March 2008 specifically warns that criminals exploit weaknesses in lending and conveyancing systems. Whilst Money Laundering Reporting Officers (MLROs) may have a good grasp of the issues surrounding compliance and regulation in general, they do not always understand some of the risks that are unique to conveyancing, needing to educate themselves on the specific workings of the conveyancing process in order to recognise the important warning signs.


PROPERTYdrum DECEMBER 2010 00


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