Mortgage Fraud and Money Laundering: Red Flags and FCA Expectations

Mortgage fraud and money laundering overlap in a way that matters to lenders, brokers, conveyancers and the accountants who prepare income evidence. A mortgage application built on false income can be a fraud on the lender. A property bought with funds from crime can be a laundering vehicle. And the same professionals, brokers, valuers, conveyancers and sometimes accountants, can be on the path of both. This guide explains the main types of mortgage fraud, what the Financial Conduct Authority expects of lenders and intermediaries, the red flags industry guidance highlights and why accountants should care about the paperwork they produce.

Where mortgage lending sits in the AML framework

The FCA's Financial Crime Guide says it is less relevant for firms with more limited AML responsibilities, and names general insurers, general insurance intermediaries and mortgage brokers among them. It adds that the guide may still help such firms set up systems and controls to reduce the risk of handling criminal proceeds and to meet their obligations under the Proceeds of Crime Act 2002. In other words, a mortgage broker may have lighter obligations under the Money Laundering Regulations than a bank, but it is not outside the criminal law on money laundering, and it has its own fraud responsibilities under FCA rules. Lenders that are banks and building societies are directly in scope of the full regime.

The main types of mortgage fraud

An industry good practice note, which appears to be a Council of Mortgage Lenders document and carries no date, describes three broad categories:

• Fraud for property. An individual obtains a bigger mortgage, or better terms, than they qualify for by misrepresenting income, employment, identity, the source of the deposit or the value of the property. The note flags fake payslips, P60s, utility bills and bank statements sourced online as a growing risk.
• Fraud for profit. Organised groups finance several properties, often inflating values and sometimes using "mortgage mules", fictitious purchasers with false identities, or related companies. The fraud can involve repeated remortgaging to extract profit.
• Professional enablers. Intermediaries, valuers, solicitors and conveyancers, accountants and lender insiders may be complicit, negligent or coerced.

The note also links mortgage fraud to money laundering under the Proceeds of Crime Act, conveyancer "hijacking" and cyber fraud that redirects mortgage or deposit funds. Our guide to money mules and account misuse explains how mule accounts feed this kind of activity, and our guide to client account fraud and payment diversion covers the redirection risk.

What the FCA expects of lenders

Chapter 4 of the FCA's Financial Crime Guide sets out examples of good and poor practice on mortgage fraud. For lenders, the expected controls include:

• Underwriting that identifies higher-risk applications.
• Ongoing review of panels of brokers, conveyancers and valuers, including identifying dormant third parties that could be exploited.
• Review of existing mortgage books for fraud indicators.
• Checks that funds go where instructed before release, prompt discharge of redeemed mortgages and checks that conveyancers register charges on time.
• Reporting through the FCA's Information from Lenders scheme.
• A clear definition of mortgage fraud, coordinated controls and engagement with cross-industry information sharing.

The FCA lists poor practice too: no clear definition of mortgage fraud, panels too big to manage, no work on dormant parties, vetting brokers only against the Financial Services Register, underwriters' demanding targets undermining controls and failing to use the reporting scheme.

What the FCA expects of intermediaries

For brokers and other intermediaries, the Financial Crime Guide expects them to recognise mortgage fraud, check that applicant information is internally consistent, ask for original documents even where lenders do not require them, carry out due diligence on introducers and report suspected intermediaries through the Information from Brokers scheme. Poor practice includes accepting applicant information at face value, carrying out no due diligence on introducers and treating due diligence as the lender's responsibility. The guide also records that the FCA has taken enforcement action for deliberately submitting false or misleading applications and for lacking adequate systems and controls, and that numerous cases have been referred to law enforcement, with some leading to criminal convictions.

Red flags

The industry note gives a long list of warning signs, including:

• A borrower who lives far from the property or uses professionals far from home.
• Income that looks high for the borrower's age or role, or poor quality paperwork such as spelling errors or a missing payroll number.
• Inconsistent address history or incomplete application answers.
• A seller that is a private company, or a property owned for under six months.
• A sale between family members or associates, or a sharp unexplained change in value.
• Undisclosed incentives, or a deposit paid by someone else.
• The same professionals appearing in every transaction in a chain.
• Multiple applications for the same property, or a late change of solicitor details.
• Valuation inconsistencies, such as a broker-requested valuer or comparables supplied by the broker.

Good practice for lenders

The same note recommends verifying income independently, using automated fraud detection alongside manual checks, running know your customer checks, carrying out due diligence on brokers, solicitors and valuers when they join a panel and auditing them on a risk basis. It also recommends checking records against fraud databases, keeping panels manageable, reporting fraudulent intermediaries to the FCA, keeping audit trails of third-party payments, training staff in fraud and avoiding incentives that reward sales over fraud detection. Because the document is undated and refers to an FCA guide updated in 2015, treat it as general good practice rather than current regulatory text.

Why accountants should care

Accountants are named among possible enablers. A reference letter, an accountant's certificate of income or a set of accounts prepared for a mortgage application will be relied on by a lender. If you provide them, check that what you sign is accurate and that you understand what it will be used for. Be cautious if a client asks you to include figures you cannot support, to backdate documents or to confirm income you have not seen evidence of. If you suspect that you have been asked to take part in mortgage fraud or to launder the proceeds of crime, you may have reporting duties; see our guide to customer due diligence for accountancy practices for the wider framework.

Frequently asked questions

Are mortgage brokers covered by the Money Laundering Regulations?

The FCA's guide describes mortgage brokers as having more limited AML responsibilities, but the Proceeds of Crime Act still applies and brokers must have systems and controls to counter fraud.

What is the difference between fraud for property and fraud for profit?

Fraud for property is typically an individual overstating their position to get a mortgage. Fraud for profit involves organised groups using multiple properties and false identities.

Can an accountant be involved in mortgage fraud?

The industry note lists accountants among the professionals who may be complicit, negligent or coerced, which is why the accuracy of income evidence matters.

Where can I get training on fraud and AML?

See Learnsignal's CPD courses for finance professionals.