How can brokers combat fraud?

The comments come following the news that individuals within aggregation group Finsure may be implicated in allegations relating to suspected fraudulent loan applications.

In an opinion piece published in The Australian Financial Review on 10 April, associate editor Joyce Moullakis reported that individuals within Finsure’s network may have been involved in fraudulent home loan activity.

Moullakis wrote that two banks had indicated “Finsure has had people within its network implicated in potential loan fraud”.

Finsure CEO Simon Bednar told The Adviser that the aggregator had not been contacted by lenders regarding the allegations.

“Speaking from our own experience, we take instances of misconduct very seriously and move quickly to remove these individuals from the network and industry,” he added.

Last month, Commonwealth Bank of Australia self-reported around $1 billion of potential mortgage fraud to police, with brokers allegedly involved.

‘Sullying the industry’

Bednar said that while misconduct exists, it is limited to a small portion of participants.

“Unfortunately, there will always be misconduct in our industry. While perpetrated by a small number of bad actors, it’s sullying the entire industry,” Bednar said.

Brokers have echoed concerns about the reputational impact of fraud cases, noting that even isolated incidents can affect broader perceptions of the channel.

“The brokers who cut corners to get a deal across the line are the minority, but they create disproportionate reputational damage for the rest of us who are doing the right thing,” Brett Sutton, mortgage broker at Two Red Shoes, said.

Similarly, Graeme Salt, director of Origin Finance, said that while misconduct exists, it is not widespread across the broker channel.

“Undoubtedly, there are some limited examples of bad apples in the broking industry. But, in my decades in the industry, bank referrer programs create more problems – as was demonstrated in the banking Royal Commission.” Salt said.

Daniel Oh, group legal counsel at aggregator Connective Broker Services, also told Broker Daily that the headlines mask what is actually a minor direct issue in the industry.

When isolated to serious misconduct, Oh said that confirmed fraud accounted for around 0.1 per cent of brokers, with around 0.4 per cent linked to higher-level misconduct.

“That’s a population of 5,000 brokers who are writing around $130 billion in settlements with us. When you look at our data over the past three or four years, that’s remained pretty stable,” Oh said.

Brokers still at risk

Despite the relatively low incidence of confirmed fraud, brokers said exposure to fraudulent activity remains a persistent risk in day-to-day operations.

Sutton said most brokers will have come across some level of fraud in their careers. A recent survey found three-quarters of brokers had experienced scams or fraud in their careers.

“It’s almost a rite of passage in this industry,” Sutton said.

However, he noted that the nature of fraud is evolving.

“The real shift I’ve noticed isn’t so much in the volume of fraud, but in how sophisticated it’s become. Altered bank statements, inflated income figures, fabricated employment letters – these used to be relatively easy to spot,” Sutton said.

“Now, with AI tools that can convincingly recreate documents down to the font, the watermark, and the formatting, it’s genuinely concerning.”

Legal and professional consequences for brokers involved in fraudulent applications, whether knowingly or inadvertently, can be significant.

Brokers may face indemnity exposure if a lender suffers losses, with provisions allowing institutions to attempt to recover funds from brokers or aggregators where misconduct is identified.

In many cases, this can lead to multiple accreditations being withdrawn, termination by the aggregator, and difficulty securing professional indemnity insurance.

Sutton added: “This should be a concern for every broker. The consequences – for clients, for brokers, and for the industry’s reputation are significant. Brokers have both a legal obligation and a professional duty to conduct proper due diligence.”

Defences

Sutton said a combination of experience, verification processes, and lender tools remains critical in identifying potential fraud.

“Honestly, it comes down to a combination of gut instinct built over years in the industry, rigorous cross-referencing of documents, and the verification tools lenders provide. I always cross-check income figures against tax returns, bank statements, and employer details – and I ask questions directly of the client if anything doesn’t stack up,” Sutton said.

“Lender-side verification tools like employment and income checks are invaluable. But experience matters too. You start to recognise when a story doesn’t quite hold together, or when numbers that should correlate simply don’t.

“That said, we’re not forensic document examiners – there are limits to what any broker can reasonably detect, particularly now that AI-generated documents can be so convincing.

“Responsibility is shared across the broker, the lender, and ultimately the client. But brokers should never be in a position of simply processing paperwork without applying genuine scrutiny.”

Salt said compliance frameworks continue to reinforce broker responsibilities.

“Thankfully brokers are drilled into high probity standards by lenders, aggregators and the MFAA. The regular AML/CTF tests are always a salutary lesson for us on our responsibilities,” Salt said.

While technology is contributing to more sophisticated fraud attempts, it is also playing a growing role in detection, as lenders and aggregators invest in verification systems.

Given the pace of change, Sutton said regulatory and industry responses must remain adaptive.

“I think the frameworks we operate under are broadly sound, but the pace of technological change – particularly around AI – means the industry needs to be proactive rather than reactive,” Sutton said.

“There’s a real case for better education and awareness around emerging document fraud risks, and for lenders and aggregators to invest in more sophisticated verification technology.”

[Related: Brokers warn AI in finance is a ‘double-edged sword’]

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