Australia’s largest aggregation group has confirmed that it is investigating two matters relating to alleged fraud, but flagged that the conduct in question appears to stem from referrers.
As lenders and regulators continue to investigate concerns relating to home loan fraud, major aggregator Loan Market Group (LMG) has confirmed that two matters have been identified within its network in recent months relating to alleged home loan fraud, which are currently being investigated.
According to LMG, the conduct being called into question in the two matters largely stems from the behaviour of referrers working with LMG brokers. These referrers operate outside the regulatory framework that governs licensed brokers. For example, they are not subject to best interests duty, licensing requirements, or mandatory AFCA membership.
LMG revealed to The Adviser that the first matter relates to two commercial brokers, who were first referred to ASIC by a lender.
The activity was identified through lender detection processes and referred to LMG for action.
Specifically, the suspected fraud relates to commercial loan “spot and refer” concerns and a lack of appropriate due diligence.
Both brokers have been suspended immediately and remain under investigation.
The second matter relates to three residential brokers who had previously been terminated and four brokers who are currently suspended and under investigation.
These were identified through “standard information-sharing with lender partners”.
According to LMG, in the second matter, the brokers were suspected of lodging fraudulent tax returns, payslips, and bank statements, generally provided by a referring accountant.
However, LMG said it would “not go into individual matters any further while investigations are ongoing”.
'Where issues arise, we act immediately': LMG CEO
Speaking of the matter, LMG CEO and executive director Ewen Stafford told The Adviser: “Where issues arise, we act immediately, including suspension, investigation, and where warranted, termination and reporting to ASIC and lenders.
“LMG maintains our rigorous, zero-tolerance approach to fraudulent activity and can confirm that we proactively monitor our network using our compliance operating model underpinned by data analytics.
“Where a broker is found to have breached our high compliance standards or engaged in misconduct, we take immediate action, which includes either suspension or termination of their agreement, conducting a full internal investigation of their conduct, and reporting the matter to the appropriate regulators ASIC and lender partners.”
Stafford noted that “the actions of a small minority operating in the unregulated margins of this industry do not define the broker channel”, highlighting that ASIC data shows that while there were over 5.4 million complaints across the finance industry in the last year, across LMG, there were 113, with no fraud complaints recorded for LMG.
He flagged that there are more than 5,000 brokers in the LMG network, who are “skilled, ethical, licensed professionals who operate under one of the most rigorous regulatory frameworks in consumer financial services”.
“They show up every day and act in their clients’ best interests,” he said.
What happens when a broker is under investigation?
According to LMG, if a lender contacts the aggregator to outline suspicions of fraudulent activity, the aggregator will triage the risk and determine whether immediate suspension is required while the investigation is ongoing.
On suspension, a broker is unable to access MyCRM (and undertake any credit-related activity).
They are also unable to act on any discharge forms or provide any documentation to the lender that reported the fraud.
LMG undertakes its own investigations to “scrutinise files created by the broker, consider compliance history and any previous accreditation issues, complaints and investigations”.
If activity is deemed severe enough, LMG will terminate a broker, and relevant information would be provided to ASIC and lenders.
As part of LMG’s due diligence, the investigation process is used to understand if there are any other associated brokers involved, or if clients have been affected, or if there are material losses, which all form part of the report to ASIC.
ASIC may then ban the broker from engaging in credit activities and seek civil penalties or refer the broker for prosecution, depending on the seriousness of the conduct.
If a terminated individual wanted to become a broker again with another aggregator (and had not been banned), the new aggregator would submit a reference check request to the broker’s licensee.
LMG said it does not accept any brokers with an adverse past history.
How is the industry responding?
LMG is the second major aggregator to have been named in the ongoing scrutiny of home loans that may include fraudulent documentation. Bankers reportedly told The Australian Financial Review that “Finsure has had people within its network implicated in potential loan fraud”.
But, in a statement to The Adviser earlier this month, Finsure CEO Simon Bednar noted that it had “not been directly contacted by any lenders or regulators regarding the current review being undertaken” and had no details on the allegations.
The leaders of the major aggregators have all highlighted that they continue to have strong monitoring of compliance of broker members, with ongoing training provided, but flagged that they cannot solve the problem in a vacuum.
The broking industry has categorised the current fraud issue as a “whole of industry issue”, rather than a broker-specific one, stressing the importance of understanding “lead and referral sources”.
The Mortgage & Finance Association of Australia (MFAA) CEO Anja Pannek said mortgage fraud is a serious matter, but was not representative of the vast majority of participants in the lending ecosystem.
“It’s not a bank, broker or referrer only issue, it’s a whole-of-industry challenge that requires a co-ordinated response,” she told The Adviser earlier this month.
“While this activity represents a small part of the market, it has outsized consequences. That’s why stronger collaboration and information sharing across brokers, aggregators, lenders and regulators is critical.”
The MFAA has established an introducer and referrer working group, bringing together major banks and aggregation groups to address fraud risks in this part of the system.
“We welcome broader collaboration across industry. We are already seeing the benefits of this approach,” Pannek continued.
The association also recently co-signed an open letter to federal Treasurer Jim Chalmers, suggesting the government should expand access to ATO data through the Consumer Data Right to “improve data integrity and reduce reliance on documents that may be susceptible to manipulation”.
Meanwhile, the Finance Brokers Association of Australia (FBAA) has demanded banks dismantle their introducer and referral programs and overhaul internal approval practices, as the industry grapples with revelations of large‑scale mortgage fraud.
Interim FBAA CEO Peter White AM stressed that the association supported firm action against wrongdoing, but warned against blanket attacks on the broking profession.
“The FBAA has been calling out some banks for ignoring recommendations from the Sedgwick report and the Hayne royal commission for many years, sadly to no avail,” he said.
“It is accepted that referral and introducer programs can be misused, and now they should be eliminated,” White said, in a direct call for banks to shut down the schemes completely.
[Related: Aggregators call for better data sharing]
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