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Ultimate Finance: More
More sensitive antennae
Learning how to avoid ‘long firm fraud’ in asset finance
Andrew Ribbins Group Sales Director & MD Asset Finance Ultimate Finance
Fraud has existed since mankind developed the ability to form intent and deceive their fellow man. Surprisingly, until 2006 there was no definition or specific offence of fraud; it existed in a myriad of other offences which were repealed then and replaced with the Fraud Act. Commonplace among frauds that have been perpetrated both before and since the changes include what is commonly referred to as ‘long firm fraud’.
A recent example includes the case of Arena Television suspected of this type of fraud. It is reported that more than 55 lenders were caught up in this alleged scam. Arena were suspected of inventing thousands of fake assets and obtaining multiple asset finance facilities across multiple providers on assets that didn’t exist. The more finance they obtained, the more creditworthy they appeared. It is alleged this culminated in more than £282 million of loans on assets that likely don’t exist.
UK Finance reported that in the first half of 2021, criminals stole a total of £753.9 million through fraud, an increase of 30% compared to H1 2020. A further indication of the issue is the estimated 4,000+ suspicious phoenix businesses formed since government support commenced in April 2020.
The impact upon lenders and brokers is considerable. Financial loss for both; bad debts and write-offs for the lenders, commission debit backs for the brokers. And then there is the potential for reputational damage, the fraudsters having no qualms about the collateral damage.
Whilst there has been no sign of any lender removing themselves from the market on the back of the current Arena Television situation, that’s not to say it won’t happen as seen before. For sure though, lenders affected will naturally revise their outlook in underwriting, inevitably leading to a restriction in appetite. Across the industry we are employing a raft of tech-based systems and processes in an ongoing attempt to combat the fraudsters. A robust and systematic approach has been developed to detect, manage, and share information through the co-operation of lenders as members of Cifas for example.
One of the goals in the last few years has been to deliver faster turnarounds on finance. The race to provide a quick acceptance potentially comes at a cost though as the level of information provided becomes one of the casualties of the concept. This line of least resistance in credit decisions becomes a fault line that fraudsters can exploit. Asking the difficult questions and requesting documents to back up answers should not be shied away from – by lenders or brokers.
Sharing information with brokers is essential. In many cases they are the front line of defence, and we should do all we can to equip them to fulfil this role. At Ultimate Finance we develop long term relationships with our introducers, so they can gain more insight and knowledge of how we can help them to combat fraud in their own business as well as the business they introduce to us.
