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Shady brokers feel FSA force

The past seven months has seen the FSA clamp down on mortgage fraud with 14 enforcement actions taken against brokers.

This has included the banning of nine brokers and a huge fine of £129,000 for a broker that committed mortgage fraud.

Last week saw the regulator ban and fine two mortgage brokers. The first, Sadir Nasir, a director of Ilford-based firm London Mortgage and Financial Services Limited – trading as House of Finance – is the first to be both banned and fined for fraud by the FSA.

The FSA fined her £129,000 for submitting numerous fraudulent applications. It found Nasir submitted seven mortgage applications containing false information about her employment and earnings, supported by falsified documents including payslips, financial statements and accountant’s certificates.

Nasir entered her own bank details on mortgage applications for clients in four instances and deliberately withheld sections of an application form from FSA investigators.

The second, was a North East-based mortgage broker Robin Knox who was banned and fined £17,500 after he exposed 500 of his customers to the risk of receiving unsuitable advice.

Knox, managing director of Mortgage and Property Services Limited, was banned for lacking competence and capability for failing to ensure his firm had proper systems and controls in place for the nature of the business it conducted.

Mortgage Force consultant Kevin Duffy believes the mortgage broking market can expect further enforcement actions over the next 12 months.

He says: “This is all very predictable given the position of the FSA in asserting its authority. It wants to be seen as a vigilant regulator and I don’t see any let up in it for the near future. It is almost being a consolidation device by stealth. I don’t think it’s any secret that the FSA and the Government would like to regulate a narrower financial services industry.”

In 2008 alone, six mortgage brokers and one mortgage introducer received enforcement action from the FSA over mortgage fraud. In June, three South London brokers were banned for submitting false mortgage applications to lenders backed by faked documents.

In March, it also banned mortgage introducer Andrew Talai Kiplimo over submitting mortgage applications supported by inflated income statements, false employment details and a false set of accounts and tax calculation.

This was the first time the FSA has made a prohibition order against a mortgage introducer – a role which does not require FSA approval – but it decided it had to take action against the fraud.

Compliance consultant Adam Samuel says the FSA knew mortgage fraud was going to be a problem. “The action it is taking now is three and a half years late but it has been a kind of gradual process. It is also very messy to pick these small firms up. If you are going to accuse someone of fraud you have to get it right,” he says.

Brentchase Financial Services mortgage specialist Mike Fitzgerald says the enforcement actions always seem to involve a certain sector. He says: “It always involves forged documents. I think they need to focus on getting rid of the websites and companies that provide these forged documents. That is obviously not the FSA’s job, it might need to stem from the Government.”

Fitzgerald says he has been shown some examples from lenders of what the forged documents look like.

He says: “I’ve seen some forged bank statements and you really can’t tell the difference. They even make sure the interest is worked out correctly to the right amount.

“The FSA does seem to be stepping up the amount of fines and bans. But there is a certain sector of the broking community that does need to be looked at.”

Last week, after it fined Nasir £129,000 for mortgage fraud, FSA director of enforcement Margaret Cole warned that the regulator would be coming down hard on brokers that commit mortgage fraud.

She said: “We have banned a number of mortgage brokers and others this year in connection with mortgage fraud but the problem persists. We made a commitment last year to increase fines in the retail sector to act as a deterrent and this case marks a step change in the way we are dealing with mortgage fraud, in line with that commitment.

“We will continue with this new policy and intensify our crackdown on mortgage fraud. Perpetrators will increasingly find themselves facing bans, heavier fines and having to disgorge illicit gains.”

The Mortgage Practitioner sole trader Danny Lovey says all the brokers that have had action taken against them deserve to be banned. “I would like to think that the FSA is looking to nail those that are not doing things by accident,” he says.

Lovey says there have been several cases recently with brokers being banned who operate locally to his office in Essex. He says: “I know that a lot of mortgage fraud happens in the East End. It needs to be cleared up.”

Duffy says the one potential benefit to the industry with the FSA cracking down on mortgage brokers is that the cost of regulation will be reduced.

But he believes that a lot of the recent action by the FSA is politically motivated.

He says: “There will be a general election in the next 18 months and questions will be asked whether this Government has taken responsibility for the provision of financial advice for consumers. The government will want to demonstrate that it has achieved this by being vigilant enough.”

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