When UK banks spun up new loan products for the Bounce Back Loan Scheme in 2020, speed was of the essence, putting fraud-risk processes under pressure and leaving both the scheme and lenders open to abuse through fraudulent activity.
Eighteen months on, the true cost of that speedy roll-out is still emerging. Due to the many ways in which qualifying criteria could be exploited, the industry has long been conscious of the potential fraud loss lurking in portfolios.
Exposure analysis: tackling a known ‘unknown’
The new problem is that nobody truly knows the extent of BBLS fraud exposure. For individual lenders looking to shape their recovery strategies, that’s an uncomfortable ‘unknown’.
The government may come good on its commitment to underwrite loans awarded but will all loans be protected? Given the scale of the issue (and the potential ramifications for taxpayers) it’s difficult to say. And for lenders, that uncertainty is risky business.
It would be very easy to say that nothing can be done as the proverbial BBLS’ horse has bolted. But in taking steps to understand their exposure to fraud loss and defaults, lenders do still have a valuable opportunity to prioritise loan recovery from likely good payers. And at the very least, having definitive insight into the scale of BBLS fraud or misuse is useful for regulatory reporting.
Daring to look
One UK tier one bank we’ve been working with has found exposure analysis particularly fruitful. By cross-referencing pre-existing fraud risk indicators from National SIRA with public sector data from the National Fraud Initiative (NFI), we conducted a full review of a subset of their BBLS applicant book.
The first stage of our review was to confirm applicant eligibility – i.e. were they actually trading before March 2020. We found 85% of screened cases to be suspect and requiring further investigation. Investigation which, among other findings, revealed that 45% of applications were for businesses who showed no evidence of trading at all - before or after the qualifying date. 14% seemed to have used the BBLS funds as a Business Start-Up loan, with evidence of them trading after 2nd March 2020 but not before – clear evidence of misuse. To see the full detail of our findings, please view the case study.
With this clearer picture of businesses who received BBLS money, our customer has been able to better understand their potential liability and develop a loan collections and recovery strategy to minimise financial loss and optimise use of resources.
Helping you to understand your exposure
If you’re an accredited lender impacted by BBLS misuse or fraud, we can help you gain a holistic view of your exposure to support and strengthen your loan recovery strategy. Simply complete the below form and a member of team will call you back.
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