Lettings agents face significant fraud risk. New technology can help agents combat fraud. But how should agents use such digital tools to spot potential red flags and mitigate the risks?

What are the risks?

Whether fake or fraudulent identification, doctored documents to inflate income or residential status, or counterfeit references from employers or landlords, agents face several types of fraud risk.

Given the cost-of-living crisis, potential tenants are more likely to falsify documents and commit fraud to secure a property. As such, lettings agents must put controls in place to mitigate the risks, spot false or fake documents and highlight red flags.

How to combat such risks

The best way agents can spot fraud and mitigate the risk is to have comprehensive policies, controls and processes to help them identify and verify potential parties to any agreement.
Technology is playing an increasing role in helping agents verify tenant identification and make it easier to spot red flags and fraud.

There are four critical attributes where lettings agents should utilise technology to mitigate their risk exposure.

1. Identity verification

There are three stages in identity verification. The first helps protect agents against the risk of money laundering and includes screening for Politically Exposed Persons (PEP) and sanctions exposure.

The second stage involves using technology to verify tenants’ identities and documents. For instance, technology can detect forgeries and offer Near Field Communication (NFC) chip readings to confirm a genuine government-issued ID.

Such technology helps confirm that the ID document has not been lost or stolen. By scanning an NFC chip, risk management tools can match a digital signature to the organisation that issued the ID and extract biometric information from the evidence supplied by the tenant.

The third stage provides the link between the ID and the tenant. This stage includes face-matching technology and a liveness test, which ensures that the person is present in real time and matches the face to the photo on the document provided.

Such electronic identity verification enables agents to verify the identity of their tenants remotely. It removes the need to collect physical documents and streamlines client identity checks.

2. Address verification

Another critical element of verifying a tenant’s identity is to obtain proof of address. Address verification software uses basic information and verifies the tenant’s address with external sources such as electoral roll, bank accounts, credit and mortgages for validation.

Using technology, lettings agents can verify a tenant’s address against data sources they would not ordinarily have access to.

3. Source of wealth (including income checks)

Source of wealth refers to the origins of a tenant’s total wealth and establishes why tenants have the assets they do and how they came to accumulate them, such as income from employment, inheritance or investments.

Open Banking is a method firms can use to verify a tenant’s true income. It enables a secure data exchange between the tenant’s bank and the verification technology provider. It allows firms to independently verify a tenant’s salary and financial information directly from the source, which maintains data integrity. There is no question of if the documents are genuine. Open Banking guards against tenants fraudulently manipulating their pay slips or other documents.

4. Credit checks

Lastly, lettings agents should obtain a credit profile from a reputable credit referencing agency. Agents should remember that there are genuine reasons why someone may not have an accessible financial profile, which should not automatically disqualify them from being a prospective tenant. Examples of genuine logical explanations could be an individual who just moved to the UK or a first-time renter. But, if the agents expected to see a financial profile based on the information they know about the tenants and they do not find one or what they expected to see, this would be a red flag.

Overall, lettings agents face significant fraud risks, especially in the current climate when tenants may be more likely to falsify or fake documents or information. But new technology can help agents mitigate the risks of such fraud while saving them time.

Harriet Holmes is AML services manager at risk management platform Thirdfort