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ASIC to undertake new loan fraud project

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Reporter 6 minute read

The financial services regulator has revealed that it is currently scoping a new project into loan fraud, which could cover mortgage brokers and lenders, in a bid to “deal with it more comprehensively”.

Speaking at the Senate economics legislation committee’s hearings on budget estimates for 2017-18 on Wednesday (31 May), representatives from the Australian Securities and Investments Commission (ASIC) were asked what they were doing to tackle loan fraud.

Peter Kell, ASIC’s deputy chair, commented: “[In the] credit sector it includes some of the ongoing work we’re doing on mortgage broking, we’re undertaking a significant project around loan fraud, particularly in the home loan market, looking at requiring lenders to improve their procedures in detecting applications that may involve fraud.”

He elaborated: “It’s been a focus for a while, but I suppose, in some ways, some of the patterns that we have been seeing indicate to us that a more systemic look at how we can reduce the incidents of loan fraud and how we can work with lenders to improve their procedures for detecting fraud [is needed].”


Notably, Mr Kell suggested that mortgage brokers could be under scrutiny here. He said that there were two “categories” in which loan fraud “tends to fall”: “Individuals, who sometimes might have a gambling problem (or something like that), that engage in loan fraud as a mortgage broker, and then we have also had some cases of far more systemic, organised examples of loan fraud with amounts well over $100 million.”

He continued: “We are getting quite a few reports from the lenders themselves when they see loan fraud, and that’s positive – that’s what we like to happen, and we’ve taken quite a lot of actions to ban brokers from the industry and in some cases undertake criminal prosecutions in relation to loan fraud but what we also want to do is shift some of that responsibility back over to the lenders as well. That’s quite critical.”

ASIC’s senior executive leader for deposit takers, credit and insurers Michael Saadat said that the regulator was “in the process of scoping that project at the moment to work out what it will cover and what it will look at”, but said that the “intent” of the loan fraud project is “to look more broadly than isolated or individual instances of loan fraud and come up with a strategy that can deal with it more comprehensively”.

Mr Saadat said that the regulator is notified about loan fraud through lenders and aggregators “that are responsible for having brokers operate under their networks” as well as AUSTRAC, but conceded that the regulator has “limited resources” and “can’t take action for every single allegation that is made about loan fraud”.

Instead, he said that the regulator “prioritise[s] the higher risk ones”.


Mr Kell added: “It’s one of those things where you will also need to be alert and [be] keeping an eye on it, but we are seeing different approaches by lenders as to how they detect it and we think if there is an ability to share some of those learnings and look at how that can be undertaken, that will help minimise [it].”

Breach reporting regime “grossly inadequate”

Among other subjects, ASIC was also asked about changes to the way in which breaches of the code of conduct in the financial sector are reported, with some senators highlighting instances where banks have taken up to six months to report a breach to ASIC.

The deputy chair of ASIC said that he believed the consultation on changing the self-reporting regime for breaches of Australian financial services licencees was important, as they are currently “inadequate across the financial services sector”.

He explained: “The bottom line is, as they currently stand, they are grossly inadequate… in several ways; the threshold for what is a significant breach is too high and unclear — it might even work in the way in that a significant breach for a very large entity might be a different threshold to a significant breach for a small entity despite the fact that it will have the same outcome for the consumer; the question as to when you have to notify or report is also unclear and at times – can almost be deliberately manipulated – so the decision maker doesn’t find out about the matter until well into the issue…; the penalty for failing to report is of the criminal threshold and the monetary amount is trivial, so we’re seeking improvement there as well.”

Mr Kell concluded: “At times we will get breach reports that come in right when you want them, but too often there are very significant delays between an institution first becoming aware of misconduct and reporting it to ASIC, which just makes it more difficult to take action.”

[Related: Broker sued by aggregator in loan fraud case]

ASIC to undertake new loan fraud project
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