UK watchdog warns lenders on mortgage fraud

LONDON, July 22 (Reuters) - Britain's financial watchdog said on Tuesday it has warned mortgage lenders about the risk of fraud as the economy worsens and has outlined its own plans to tackle financial crime.

The Financial Services Authority wrote to associations including the Council of Mortgage Lenders and the British Bankers' Association reminding lenders of their responsibility to combat financial crime.

In the last 12 months, the Financial Services Authority has banned 17 individuals in the mortgage lending business and levied fines, including a 129,000 pound penalty against a broker -- the first against a broker for mortgage fraud. The FSA said it had finished an initial phase of visits to 20 small firms to check systems and controls and planned to review 200 mortgage brokers.

The FSA also said later this year it would review a decision five years ago to exclude mortgage brokers from the need to be approved by the financial watchdog.

(Reporting by Clara Ferreira-Marques; editing by Elaine Hardcastle)