Financial Crime, Fraud and Terrorist Financing
Financial crime can cause serious harm.
It can affect:
- customers
- lenders
- advisers
- businesses
- the wider financial system
Therefore, financial firms need strong controls.
Mortgage advisers also need to stay alert.
After all, mortgage applications involve large amounts of money and detailed personal information.
So, the main rule is simple:
Be alert, use accurate information and follow the firm’s procedures when something does not look right.
What Is Financial Crime?
Financial crime is a broad term.
It covers criminal activity involving money, financial services or financial systems.
For example, it can include:
- fraud
- money laundering
- terrorist financing
- bribery
- corruption
- identity crime
The FCA expects firms to have suitable systems and controls to reduce financial-crime risk. (API Handbook)
However, different crimes work in different ways.
Therefore, it helps to look at them separately.
Why Does Financial Crime Matter to Mortgage Advisers?
Mortgage advisers handle a lot of financial information.
For example, customers may provide:
- payslips
- bank statements
- proof of deposit
- identification
- employment details
- credit information
Usually, this information is genuine.
However, sometimes something may not match.
Therefore, advisers need to notice possible warning signs.
A Simple Mortgage Example
Imagine a customer says they earn:
£35,000 a year
However, the application shows:
£50,000 a year
The customer then says:
Just leave it like that. The lender probably won’t check.
The adviser must not knowingly submit false information.
Instead, the correct information should be used.
Therefore:
Never change the facts to make a mortgage application fit.
What Is Fraud?
Fraud involves dishonest behaviour designed to create a gain or cause a loss.
Under the Fraud Act 2006, fraud can be committed in several ways.
These include:
- false representation
- failing to disclose information where there is a legal duty to disclose it
- abuse of position (Legislation.gov.uk)
For CeMAP, the important idea is simple:
Fraud involves dishonesty.
Fraud by False Representation
One type of fraud involves giving false information.
For example, someone may dishonestly claim:
- higher income
- different employment
- lower debts
- a false address
Therefore, false information can affect a lender’s decision.
This is especially relevant to mortgages.
A False Income Example
Imagine a borrower earns:
£30,000
However, they provide documents showing:
£45,000
If the documents are knowingly false, the lender receives a misleading picture.
As a result, the borrower may obtain a mortgage they would not otherwise receive.
Therefore, false income can create both fraud risk and affordability risk.
Fraud by Failing to Disclose Information
Fraud can also involve deliberately withholding information where there is a legal duty to provide it. (Legislation.gov.uk)
For example, a person might knowingly hide an important fact because they believe it will affect a financial decision.
However, not every forgotten detail is fraud.
Dishonesty matters.
Therefore, advisers should avoid making accusations.
Instead, they should follow firm procedures if information does not make sense.
Fraud by Abuse of Position
Another form of fraud involves abusing a position of trust.
For example, a person may use their role to gain money dishonestly or cause someone else a loss. (Legislation.gov.uk)
This can be relevant in financial services because employees may have access to:
- customer information
- accounts
- systems
- financial decisions
Therefore, firms need controls around staff as well as customers.
Mortgage Fraud
Mortgage fraud happens when dishonest information or behaviour is used in connection with mortgage lending.
For example, it may involve:
- false income
- false employment
- altered documents
- hidden debts
- false identity
- dishonest property information
The FCA has long treated mortgage fraud as a financial-crime risk for lenders. (FCA)
Therefore, advisers should never help a customer make an application look stronger than it really is.
Fraud Can Involve More Than the Borrower
It is important not to assume that the customer is always responsible.
Fraud can also involve:
- advisers
- employees
- third parties
- organised criminals
Therefore, firms need strong internal controls.
As a result:
Financial-crime prevention is everyone’s responsibility.
Identity Fraud
One common risk is identity fraud.
This happens when someone dishonestly uses another person’s identity or details.
For example, they may use:
- stolen passport details
- false addresses
- another person’s bank information
- forged documents
Therefore, identity checks can help protect both the lender and the genuine customer.
A Simple Identity Example
Imagine someone applies for a mortgage using another person’s identity.
If the fraud succeeds:
- the lender may lose money
- the innocent person may suffer serious harm
- the property transaction may be affected
Therefore, KYC and identity checks have a real purpose.
They are not just paperwork.
Document Fraud
Fraud may also involve false or altered documents.
For example:
- payslips
- bank statements
- tax records
- employment letters
- identification
Therefore, advisers should not ignore obvious inconsistencies.
However, they should not try to become forensic investigators either.
Instead:
Notice → Follow procedure → Escalate
Money Laundering
Money laundering is another major type of financial crime.
Broadly, it involves dealing with criminal proceeds in a way that hides or disguises their criminal origin.
Therefore:
Crime creates money
↓
Money is moved or hidden
↓
Its origin becomes harder to trace
↓
Funds appear more legitimate
The FCA includes money laundering as a major financial-crime risk. (API Handbook)
The Three Traditional Stages
Money laundering is often explained using three stages:
Placement
Criminal money enters the financial system.
↓
Layering
The money moves through transactions to make the trail harder to follow.
↓
Integration
The money returns to the economy appearing more legitimate.
However, real money laundering does not always follow these steps neatly.
Still, they are useful for learning the basic idea.
Property Can Be Used to Launder Money
Property transactions can involve large sums.
Therefore, criminals may try to use property to:
- store value
- move money
- disguise ownership
- make criminal funds appear legitimate
As a result, mortgage and property transactions can attract financial-crime risk.
A Property Example
Imagine a customer says their £100,000 deposit comes from savings.
However, the money arrived yesterday from an unknown overseas company.
Then, the customer gives several different explanations.
This still does not prove money laundering.
However, it creates questions.
Therefore, the adviser should follow the firm’s process.
Terrorist Financing
Terrorist financing involves providing, using, possessing or arranging funds or property connected with terrorism in circumstances covered by the Terrorism Act 2000. (Legislation.gov.uk)
However, there is an important difference from money laundering.
With money laundering, the money often comes from crime.
With terrorist financing, the money may sometimes come from a legal source.
The problem is what the money is being used for.
Money Laundering Versus Terrorist Financing
A simple way to remember the difference is:
Money Laundering
Where did the money come from?
Often, the concern is hiding criminal proceeds.
Meanwhile:
Terrorist Financing
What is the money being used for?
The concern may be funding terrorism.
Therefore:
Money laundering often focuses on criminal source.
Terrorist financing focuses on criminal purpose.
Terrorist Financing Can Use Small Amounts
Terrorist financing does not always involve very large sums of money.
Therefore, firms should not assume:
Small amount = no risk
The wider situation matters.
As a result, financial-crime controls should remain risk-based.
Financial Crime Warning Signs
There is no single sign that proves financial crime.
However, possible warning signs may include:
- documents that do not match
- changing explanations
- unexplained third-party funds
- unusual money movements
- false identity information
- pressure to ignore checks
Therefore, advisers should look at the full picture.
A Warning Sign Is Not Proof
This distinction is important.
For example, a customer may receive a large family gift.
That may be completely genuine.
Likewise, an international transfer may have a simple explanation.
Therefore:
Unusual does not automatically mean criminal.
Instead, unusual activity may simply mean more information is needed.
Do Not Judge People by Appearance
Financial-crime controls should be based on facts and risk.
They should not be based on assumptions about:
- age
- race
- nationality
- clothing
- accent
- disability
Therefore:
Focus on the transaction and the evidence.
This supports both fairness and good financial-crime control.
Internal Fraud
Financial crime can also happen inside a firm.
For example, an employee may:
- steal customer data
- change records
- take money
- create false applications
Therefore, firms need internal controls too.
This can include:
- access controls
- supervision
- monitoring
- clear responsibilities
As a result, good financial-crime systems look both outward and inward.
Cyber Fraud
Financial crime increasingly uses technology.
For example, criminals may use:
- fake emails
- fake websites
- hacked accounts
- stolen passwords
Therefore, advisers need to be careful with digital communication.
For example, an email that appears to come from a solicitor may actually be fraudulent.
Phishing
Phishing involves fake messages designed to trick someone into giving information or taking an unsafe action.
For example, a fake email may ask someone to:
- click a link
- provide a password
- send bank details
- transfer money
Therefore, staff should verify unusual requests carefully.
A Payment Fraud Example
Imagine an adviser receives an email saying:
The solicitor’s bank details have changed. Use this new account.
The email looks genuine.
However, it has been sent by a criminal.
Therefore, important payment changes should be checked through trusted channels.
Social Engineering
Criminals may also manipulate people rather than systems.
This is often called social engineering.
For example, someone may pretend to be:
- a customer
- a lender
- a manager
- a solicitor
They may then ask for confidential information.
Therefore:
A convincing story is not the same as proof.
Verification still matters.
Suspicious Activity Reports
When knowledge or suspicion of money laundering or terrorist financing meets the legal reporting requirements, a Suspicious Activity Report, or SAR, may be made.
SARs alert the UK Financial Intelligence Unit to possible money laundering or terrorist financing. (National Crime Agency)
Therefore:
Concern arises
↓
Firm procedure followed
↓
SAR may be made where required
However, employees should follow the firm’s reporting process.
What Is the UKFIU?
The UK Financial Intelligence Unit, or UKFIU, sits within the National Crime Agency.
It receives and analyses SARs.
Therefore:
UKFIU → Receives financial intelligence about suspected money laundering and terrorist financing
This forms an important part of the UK’s financial-crime system. (National Crime Agency)
Do Not Tip Off the Customer
Once a report or investigation exists, staff need to be careful about what they say.
In some circumstances, revealing information may cause legal problems.
Therefore, advisers should not simply tell a customer:
You have been reported for money laundering.
Instead, they should follow firm procedures.
Mortgage Advisers Should Not Investigate Crime
Mortgage advisers are not police officers.
Therefore, they should not try to prove whether a crime has taken place.
Instead:
Notice the concern
↓
Record what is relevant
↓
Follow firm procedures
↓
Escalate where needed
This is the safer approach.
Do Not Help a Customer Avoid Checks
Sometimes, a customer may ask:
Can we leave that payment off the application?
or:
Can we say the deposit came from savings instead?
The answer should be no.
Therefore:
Never help a customer avoid proper checks by changing or hiding facts.
Financial Crime and Professional Integrity
Financial-crime prevention connects directly with professional conduct.
For example, an adviser who knowingly submits false information may breach:
- firm rules
- FCA standards
- professional duties
- criminal law
Therefore, honesty is essential.
A sale is never worth acting dishonestly.
Financial Crime and Customer Confidentiality
Financial-crime checks often involve private customer information.
Therefore, firms must still handle that information securely.
For example:
- identity documents
- bank statements
- source-of-funds evidence
should not be shared carelessly.
This links back to Page 25 on data protection.
Financial Crime and KYC
KYC also supports financial-crime prevention.
For example:
Know the customer
↓
Verify identity
↓
Understand the transaction
↓
Understand source of funds
↓
Notice possible mismatches
Therefore, Pages 26, 27 and 28 all connect.
A Full Mortgage Example
Imagine Alex wants to buy a home.
They provide:
Income: £45,000
Deposit: £60,000
At first, everything looks normal.
However, the adviser then notices:
- the payslip looks altered
- £55,000 of the deposit arrived yesterday
- the source of the money changes each time Alex is asked
- Alex asks the adviser not to tell the lender
This does not give the adviser the job of proving a crime.
Instead:
Notice concerns
↓
Do not submit false information
↓
Follow firm procedure
↓
Escalate appropriately
Therefore, the adviser remains within their role.
A Simple Adviser Process
If something looks wrong:
Check the Facts
What information actually conflicts?
↓
Do Not Assume
A strange situation may have a genuine explanation.
↓
Ask Appropriate Questions
Follow the firm’s process.
↓
Do Not Help Hide Information
Keep the application accurate.
↓
Escalate Concerns
Use the correct internal route.
↓
Keep Records
Make the process clear.
This approach is simple and safe.
What Should an Adviser Avoid?
Avoid:
- knowingly submitting false information
- ignoring obvious mismatches
- accusing customers without evidence
- investigating crime personally
- bypassing firm controls
- revealing confidential reports
Therefore:
Be alert without becoming an investigator.
A Simple Memory Aid
Remember:
Notice
↓
Check
↓
Do not assume
↓
Keep information accurate
↓
Escalate
↓
Record
This is a useful approach to financial-crime concerns.
Key Terms to Remember
Financial Crime
Crime involving money or financial services.
Fraud
Dishonest behaviour intended to create a gain or cause a loss.
Mortgage Fraud
Fraud connected with mortgage lending or applications.
Identity Fraud
Dishonest use of another person’s identity or personal information.
Money Laundering
Dealing with criminal proceeds so that their criminal origin is hidden or disguised.
Terrorist Financing
Providing, using or arranging funds or property connected with terrorism.
SAR
Suspicious Activity Report.
UKFIU
UK Financial Intelligence Unit.
Phishing
Fake communication designed to steal information or encourage unsafe action.
Social Engineering
Manipulating people into revealing information or taking actions that help criminals.
Quick Knowledge Check
1. What is financial crime?
Crime involving money, financial services or financial systems.
2. What are the three main forms of fraud under the Fraud Act 2006?
False representation, failure to disclose information where there is a legal duty to do so, and abuse of position.
3. What is mortgage fraud?
Dishonest behaviour or false information connected with mortgage lending or an application.
4. What is money laundering?
Dealing with criminal proceeds so their criminal origin is hidden or disguised.
5. What are the three traditional money-laundering stages?
Placement, layering and integration.
6. What is the basic difference between money laundering and terrorist financing?
Money laundering often focuses on hiding the criminal source of money, while terrorist financing focuses on money or property being used for terrorism.
7. Does unusual activity automatically prove a crime?
No. It may simply mean further checks are needed.
8. What does SAR stand for?
Suspicious Activity Report.
9. What does UKFIU stand for?
UK Financial Intelligence Unit.
10. Should a mortgage adviser investigate suspected crime personally?
No. They should follow firm procedures and escalate concerns appropriately.
Quick Summary
Financial crime covers many different risks.
These include:
Fraud
↓
Money Laundering
↓
Terrorist Financing
Fraud usually involves dishonest behaviour for gain or to cause loss. The Fraud Act 2006 includes fraud by false representation, failure to disclose information where legally required, and abuse of position. (Legislation.gov.uk)
Meanwhile, money laundering involves dealing with criminal proceeds so their origin is hidden.
Terrorist financing is different because the money may not originally come from crime. Instead, the concern is that funds or property are connected with terrorism. (Legislation.gov.uk)
For mortgage advisers, the practical rule is simple:
Keep information accurate.
Then:
Notice problems → Follow procedure → Escalate → Record
Most importantly, do not assume that unusual activity means someone is guilty.
Instead, remain fair and alert.
At the same time, never help a customer hide or change information just to get a mortgage approved.
Next Page
Bribery, Corruption and Market Abuse