With some suggestions that mortgage fraud is reaching epidemic proportions, it is more important than ever for lenders to be certain that the people they are lending to are who they actually say they are.
However, with the high quality of physical forgeries, is it time to move away entirely from the use of paper and personal checks in favour of third-party electronic processes that are demonstrably more robust and less vulnerable to deception? Anyone who thinks paper checks are reliable should take a few minutes to searching the internet.
Sites like foolthem.com and outthetopdraw.info offer the full range of so called ‘novelty’ documents fraudsters would need to make a fraudulent application.
The verification of such documents may in fact take place many times during the process of an application. The adviser will carry out their own checks, as will the lender, at application stage and frequently the solicitors will be asked to conduct further authentication of the documents.
Despite this, the standard way that most advisers and lenders check identity is through the inspection of exactly the type of documents, such as passport, birth certificates, utility bills, etc, that are so easily counterfeited. Consequently, as an industry we are working harder rather than working smarter.
Identification and verification checks are made for multiple reasons, including meeting anti-money laundering obligations as well as the prevention of fraud. From a JMLSG perspective, there is simply no need for multiple checks to take place. The Money Laundering Regulations 2007 supported by JMLSG guidelines are quite clear that organisations can rely on checks carried out by third parties
Making use of checks
Adviser firms operating in the life and pensions market are already making use of electronic ID checks to considerably reduce the time and money they have to spend on conducting anti-money laundering procedures. For example Origen, the national IFA firm, have been using GB Group’s URU service to enable their 150 advisers to electronically carry out identification checks since December 2006.
As a result they have been able to significantly reduce the time and effort necessary to comply with anti-money laundering obligations. This also improves the customer experience.
Clients are invariably cautious about parting company with their passports, and given the vagaries of the postal system, how many important items of identification are actually lost each year. One very large mortgage adviser told me recently that it is inevitable that a dozen or so passports will get lost each year while they are conducting identity checks.
Electronic checks can be obtained in seconds and avoid the need for taking copies of physical documents. They can also be delivered in an electronic format so that an adviser could obtain the ID check and forward an electronic certificate to the lender or life office confirming the check they have carried out.
Not only can the checks be processed electronically but they could be set up so that the adviser can obtain different levels of detail for different classes of borrowing; e.g. one level for full status advances but more detail for self-certified cases and even more for non-conforming.
The JMLSG has made it clear on several occasions that it considers electronic checks far more robust than the examination of paper, so why are so many processes built around it and, indeed, are anti-money laundering officers who accept procedures based around the examination really meeting their regulatory obligations in the best way they can?
While these procedures are increasingly becoming accepted by life insurers and several of the largest networks and support groups are on the verge of rolling out this functionality to their members, for the most part the mortgage market still requires traditional paper confirmations. The same networks and support groups are also major mortgage introducers, so there is the opportunity for lenders to take advantage of these services.
A further recent example of this is that Intelliflo has recently integrated the URU system into its Intelligent Office software. The adviser pays between £1.25 and £1.50 for each check depending on the options used, for each client whose identity is confirmed in this way. Compared with the time and cost involved in obtaining and copying traditional documents this must represent a significant saving for the adviser.
Even if lenders do not take advantage of the economies that using electronic ID checks obtained by mortgage advisers, the benefits of the electronic process over paper are clear. Given that an increasing number of advisers do have these facilities available it appears to me that lenders failing to take advantage of them are missing an opportunity to benefit from more robust checks which could also remove unnecessary duplications of tasks.
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