Broker fraud may be low, but the stakes are high

Daniel Oh, group legal counsel at Connective Broker Services, said that while headline figures may appear alarming, the underlying data suggests that fraud directly linked to the broker channel remains low and stable.

Fraud levels remain low despite scrutiny

According to Oh, Connective conducts around 300 investigations each year across its network of approximately 5,000 brokers for a number of reasons, fraud and misconduct being one of them.

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.

“When I take a step back on this and ask how many brokers does Connective actually terminate each year for either fraud, or highly suspected misconduct, it’s less than a handful,” Oh said.

“It’s less than five for out and out fraud, and then maybe another 10–15 on some level of 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, and I would hope that’s consistent over the industry.”

Fraud back in the headlines

Oh said that the stability across the industry contrasted with the narrative emerging from recent high-profile cases.

At the end of last month, Commonwealth Bank of Australia self-reported concerns to police and the corporate regulator regarding potential mortgage fraud estimated at around $1 billion.

Oh said headline figures can obscure important context, including the limited number of individuals involved and the role of channels outside traditional broking.

“A billion dollars of loan fraud is a significantly large number, at least at a sticker shock perspective,” Oh said.

“But if you peel back the layers, it’s centred around a couple of angles.

“Firstly, only two mortgage brokers were involved. They were with a different aggregator, so I don’t have the details about it, but it was just two mortgage brokers.

“But also, a lot of the reporting also talked about the referrer program. Now, that is not a mortgage-broking channel, that’s not even a third-party channel, that is linked to the bank’s proprietary channel.”

Brokers face rising pressure as fraud evolves

The fact that the third-party channel has seen stable and low levels of direct fraud does not mean that brokers are not immune to risk, Oh said.

For brokers, the key risks lie less in intentional wrongdoing and more in process failures. Oh pointed to “chain of custody” over documents as a critical control, particularly as falsified payslips and bank statements become more sophisticated.

“Fraud is everywhere and no channel has a monopoly,” Oh said.

“What is key from my perspective, and what we always train our brokers on, is chain of custody and control – where did you get the documents from?”

Connective has increasingly pushed brokers towards sourcing information directly through secure channels, such as open banking, allowing brokers to obtain documents straight from the source and reducing the risk of manipulation.

“The issues so often come when the customer emails documents through, or when brokers say they’ve hand-collected them,” Oh said.

“If a lender asks where that document came from and the broker can evidence it, it’s usually fine. But when they can’t demonstrate that, that’s when the trouble arises.”

Alongside document handling, Oh emphasised that basic responsible lending checks remain critical. This includes verifying that payslips align with bank statement credits and ensuring income and expenses stack up.

Referrers also require careful scrutiny. Oh urged brokers to conduct due diligence on lead sources and avoid arrangements that appear too good to be true.

“It’s your livelihood, don’t become a bunny for a bad player,” Oh said.

“Understand who your referrer is, where the leads are coming from, and whether they’re credible.”

Career-ending consequences for brokers

The legal and professional consequences of being linked to fraudulent applications can be significant, even where brokers are not the primary bad actors.

Oh said 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.

However, he stressed the more immediate risk is to a broker’s career.

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

“The ramifications are massive; it’s basically the end of their livelihood in the brokering industry,” Oh said.

Even where brokers are unknowingly caught up in fraudulent activity, the burden is on them to demonstrate they followed proper processes.

“You’ve got to do your own work. You can’t just rely on what’s been given to you, you need to verify it yourself,” he said.

Oh added that maintaining a clear audit trail is critical, as it allows aggregators to advocate on behalf of brokers where appropriate.

“If you can prove you’ve done the right thing, that gives us the best fighting chance to defend the broker,” he said.

Aggregators play a central oversight role

Aggregators also carry significant responsibility in managing fraud risk across the broker channel, according to Oh.

“We’ve got a huge responsibility in this,” he said.

“The genesis of aggregation was banks didn’t want to deal with thousands of individual brokers, but it’s evolved well beyond that into supervision and oversight.”

Under agreements with lender partners, aggregators are required to monitor broker activity and ensure minimum compliance standards are met.

“At Connective, about 55 per cent of our brokers operate under our licence, so we have a regulatory obligation and very strict oversight over those brokers,” Oh said.

“We take that really seriously.”

For the remaining brokers operating under their own or third-party licences, he said responsibility still applies across all submitted loans.

“We still supervise, we still monitor, there is a responsibility there,” he said.

To support this, Connective provides ongoing training across its network, spanning compliance, cyber security, and fraud-related risks.

“We have an extensive learning and development program – from compliance 101 through to fraud detection and management,” Oh concluded.

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