Over 220 delegates attended the exclusive Asset Finance Connect Fraud webcast, sponsored by Acquis Data Services, reinforcing the fact that the topic of fraud in asset finance is still very much alive and relevant, and needs action now from the industry.
The Arena fraud scandal
Ten months on from the Arena Television revelations – “one of the biggest frauds in UK asset finance” – which exposed a massive hole in the collective asset finance industry, what lessons have been learnt?
Fraudulent activity at Arena had been happening for more than a decade but was only exposed in November 2021, with over 50 leasing companies impacted and total losses valued at over £280bn.
As AFC asset finance community leader Stephen Bassett puts it, “The financial services sector is under attack by fraud.” The Arena fraud was not a unique event for the asset finance industry, with fraud involving multiple companies unquestionably occurring every five years or so for ever increasing amounts.
All panellists agreed that the whole industry ecosystem must be aware and engaged in the topic, with closer co-operation and communication – sharing data and experience – needed, but this is not the whole solution.
The continuing fraud phenomenon must be addressed now with barriers put up to stop fraudsters impacting the asset finance market.
After Arena, the Finance & Leasing Association (FLA) took part in workshops with Acquis looking at different ways of sharing and analysing data.
The FLA’s Simon Goldie, Director of Business Finance & Advocacy, confirmed that the FLA are looking at three broad work streams:
- Working with Acquis – what do members think about the Lumia product, how could it be explored?
- Working with Experian – looking at how the company shows data and how lenders could spot the problem earlier.
- Working with all credit reference agencies (CRA) – how data is shared amongst them, how do members provide that data?
The FLA also issued best practice on fraud mitigation, with a focus on sharing, providing and using data; asset inspections; and communicating with brokers. Physical asset registers were also considered but FLA members did not see them working effectively and, realistically, they wouldn’t have stopped Arena. However, they could be part of a mosaic to combat the problem.
Bassett highlighted that the lack of shared data and information during Arena was a major issue in the scandal: “Each finance company had no idea how much was being funded by other funders…and that is the root of the problem.”
Steve Budd, Chief Operating Officer and MLRO at Investec Asset Finance Plc feels that the industry must supply accurate data to the credit bureaus who must, in turn, report it to their users of the service: “Credit bureaus are only as good as the data they receive from the asset finance funders.”
As Budd continued, “Until such a time where all funders provide correct data to the credit bureaus and the credit bureaus consume and share that data, we are to a large extent sailing blind.”
Following Arena, Nick Leader, CEO of Acquis Data Services received calls from his customers asking him to be involved in trying to solve the fraud issue in the asset finance industry as Acquis already receives substantial amounts of data from many players in the market.
Acquis set up workshops with the CRAs and the FLA to discuss how this had happened and how fraud could be stopped. As Leader notes, “We tried to bring the industry together to design the solution themselves.” A working party was created to design an effective accurate solution and address any concerns, such as data in data out, GDPR, marketing leakage and data storage.
Acquis Data Services was created to purely address this issue and has since built a potential solution for the industry – Acquis Lumia – a register of asset finance borrowing which will provide a clear view of a company’s current asset finance arrangements to empower confident lending decisions. Acquis Lumia currently has 35 Expressions of Interest signed to date (including seven of the top ten UK asset finance companies). The system is live but will not be released until there is sufficient scale of data on the system.
The way forward
John Phillipou, Managing Director of SME Lending at Paragon Bank plc pointed out that there are so many proposals on the table that “we are at risk of doing nothing the longer it goes on – we need to stop and reach a solution now!”
Phillipou noted that it is possible to find an effective solution quickly, citing a recent fraud case in Germany which was dealt with relatively swiftly and efficiently by the relevant trade association linked with a private company who formed a collaborative asset data checking tool to stop future fraud, all within six months.
A delegate at the webcast also raised the point that, in Germany, the BDL (the Federal Association of German Leasing Companies) brought together major lessors to sort out issues of fraud and, therefore, in the absence of any government regulation, should the FLA step in?
Simon Goldie highlighted that the FLA is driven by its members who urgently need an effective solution. The FLA will continue to work with Experian and Acquis, but if neither get the required market share or share data between themselves, they will return to their members for further clarity.
Steve Budd believes that the solution does not lie with the CRAs due to a historic issue where it will take too long for them to engage with all funders to protect the data that is being fed into them. Budd pointed out that Investec reported all 10 Arena loans to their credit bureau who, in turn, only reported five of them, highlighting a major problem with the credit bureaus.
There is also no co-operation between the credit bureaus as they all strive to gain market share. A credit bureau would need a larger portion of the market data to allow them to be a single data source. CRAs need to collaborate or one must have a data point of 60-70% market share for them to be an effective solution to the issue of fraud.
In this respect, Leader highlighted that Lumia is not reliant on winning market share, with data collected in a narrow direct way. Acquis Lumia will not charge for its services until it has an adequate market share.
To conclude, AFC’s Bassett painted a picture of the asset finance industry forming an indestructible circle with their ‘wagons’ to stop the fraudsters getting in. Anyone outside the circle will therefore be isolated and targeted, but these outsiders will also weaken everybody else’s defences. Bassett stressed the point that the industry must stop talking and work to find a solution for fraud now before another Arena is revealed.