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The Australian Securities & Investments Commission (ASIC) has confirmed it is making compliance inquiries after the major bank self-reported concerns that some loans on its mortgage book may have been obtained fraudulently.
According to reports, the suspected cases may involve doctored income documents and fake financial information, with some allegedly linked to accountants and brokers.
The issue has raised broader questions across the lending sector about how fraudulent applications can make their way through the loan process.
Speaking on the latest episode of the Finance Specialist podcast, hosts Liam Garman and Accendo Financial director Trent Carter said the case highlights vulnerabilities across the financial services ecosystem rather than a problem confined to a single lender.
“I think it’s probably an industry issue, not so much just a Commonwealth Bank of Australia (CBA) issue,” Carter said.
“I don’t think we’re ever going to be in a world where fraudulent matters and financial transactions don’t exist. Where you’ve got large financial transactions and where you’ve got criminals who can make a potential gain in it, there is going to be an element of bad actors out there committing fraud, trying to skirt the system to be able to advantage themselves.”
Fraud becoming harder to detect
While investigations into the CBA matter are ongoing, Carter said mortgage fraud has been a longstanding issue in lending and is becoming increasingly sophisticated as technology evolves.
Loan approvals in Australia still rely heavily on documentation such as payslips, tax returns, accountant’s letters, and financial statements – many of which are typically submitted in PDF format.
This reliance on documents creates an opportunity for manipulation.
“They’re using AI and PDF editors, and the level of document fraud and creation is getting better and better and harder to detect,” Carter said.
In some cases, fraudulent applications may involve altered payslips, fabricated income statements, or discrepancies between declared income and actual bank deposits.
He noted that hackers and businesses may increasingly engage in a technology-driven arms race, as each side tries to outsmart the other.
“It’s going to be this AI versus AI type world, where AI produces fraudulent documents against AI detection tools that banks are putting in place,” Carter said.
Broker Daily recently reported on the increasingly sophisticated tools at the disposal of brokers, banks, and aggregators to detect fraud and fraudulent documents.
Carter also suggested the industry may increasingly move towards verification methods that rely less on manually produced documents, such as using secure banking data to confirm income.
However, he stressed that responsibility for detecting fraud does not lie with any single participant in the lending chain.
“We’re all part of the ecosystem – banks, regulators, brokers and clients – so it’s incumbent on everyone to be aware of the issues,” he said.
Back to basics for brokers
The investigation has also prompted discussion about how brokers can protect themselves if they unknowingly become involved in fraudulent transactions.
Carter said brokers should expect that they may still be questioned if a loan they processed later turns out to involve fraud, but strong documentation and compliance processes are typically the best protection.
“If brokers are doing a good job, they shouldn’t fear that investigation,” he said.
“If you’ve followed a strong compliant process, you’ll come out the other side just fine.”
He emphasised that brokers should maintain detailed file notes throughout the loan process, particularly around key steps such as verifying identification, income, and financial information.
“Just document every client interaction that you’re having, especially around the critical parts of the transaction,” Carter said.
Maintaining a clear audit trail, including file notes, confirmation emails, and securely stored documents in CRM systems, can help brokers demonstrate the steps they took if a transaction is reviewed years later.
Carter gave an example from his own career: “To be a case in point, probably going back about five years now, I was involved in a fraudulent case with a major bank in vehicle finance, and it was very sophisticated.
“I took steps through the ID process, and where the ID couldn’t be 100 per cent met with the bank’s policy, I requested that the bank review this and provide what other information they would be able to rely on. They provided guidance, and I took notes.
“Lo and behold, six months later they revealed that it was a fraudulent transaction and asked me to review it, the notes and everything that I had on it. There was nothing to be seen here – we were fine. We did everything right in the process, but we got tricked. We were involved in it.
“So I suppose I want to make sure that brokers don’t fear if they’re tapped on the shoulder by their aggregator or a lender. If you’ve done nothing wrong and you’ve followed a strong, compliant process, fear not. You’ll come out the other side.”
Walking away from suspicious deals
Carter also advised brokers to escalate any concerns about suspicious documentation to their licensee or compliance team before proceeding with an application.
“The first thing you can do is approach your licensee and compliance team and say, ‘I’m working on a deal, and something doesn’t add up,’” he said.
In some situations, brokers may ultimately need to decline the deal altogether.
“Just because we have the opportunity to do a lending application doesn’t mean we need to,” Carter said.
“This is where we need to rely on our business ethics and morals and say: ‘It might be a large transaction and potentially lucrative from a commission perspective, but what’s more important is my longevity in this industry and my ability to continue practising as a broker.’”
As regulators continue to examine the extent of potential mortgage fraud across the sector, Carter said brokers should focus on strengthening existing compliance practices rather than seeking costly new technology solutions.
“If you’re doing your job right and well, you should have nothing to fear,” he added.
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