TL;DR: The UK’s “Failure to Prevent Fraud” offence is a corporate liability law targeting large businesses where employees and associated persons could potentially commit fraud and the company inadvertently fails to prevent it. To avoid penalties, businesses must show that “reasonable procedures” were put in place.
An Introduction to Fraud and Risk Assessment
The introduction of the UK’s Failure to Prevent Fraud offence marks a pivotal moment for financial services compliance. The fraud triangle, developed by Donald Cressey, posits a model for three conditions that lead to fraud; pressure, opportunity and rationalisation. This framework helps explain why the new UK legislation coming into force targets large organisations with direct liability for fraudulent business perpetrated by employees, agents, or subsidiaries.
It forms part of wider reforms under the Economic Crime and Corporate Transparency Act 2023, significantly broadening the scope of liability for existing procedures. For financial services firms, this represents a shift in how internal controls, training, and third-party oversight are assessed. For risk and compliance leaders, the law demands a strategic overhaul of how fraud risk is managed. Heavy measures are no longer optional – they are legal expectations for company directors.
To remain compliant, firms must build demonstrable frameworks that reduce the risk of prosecution for crimes. Examples of fraud acts include as tax evasion offences, associated persons making false statements, false accounting, fraudulent trading, bribery acts, false representation fraud, obtaining services dishonestly, and cheating the public to name a few. This guide outlines a practical checklist for preparation, clarifies common myths, and shows how companies can put in place fraud prevention procedures.
What is the Failure to Prevent Fraud Offence?
The Failure to Prevent Fraud offence introduces regulations for organisations specific to when an “associated person” commits fraud for the business’s benefit, particularly when it falls under a specified offence in the ECCT 2023. Even if the senior leadership is unaware of any wrong-doing, the offence applies and they are held criminally liable for any fraudulent conduct. ,As a result if firms are found liable, they can face unlimited fines and reputational harm unless they can prove “reasonable procedures” were put in place.
Large organisations can now face criminal prosecution for fraud committed by employees or agents- regardless of whether senior management was aware. Without reasonable fraud prevention procedures in place by 1 September 2025, firms risk facing unlimited fines and irreversible reputational damage. – Milosh Caunhye, Fraud Prevention Consultant
The defence requires organisations to demonstrate adequate fraud controls tailored to their risk environment. It must go beyond a policy document – there must be clear evidence of implementation. Failure to meet this bar exposes firms to criminal prosecution. By implementing tools to support this evidentiary standard, companies can avoid underlying fraud offenses through real-time controls and audit capabilities.
Financial Services and Corporate Liability
Recent data has shown a disproportionate amount of offenses across banking, lending, and insurance. This marks a significant shift in who takes accountability and how fraud prevention has now become a board-level concern for large organisations. Senior managers and leadership teams must build out effective fraud frameworks that are implemented and regularly reviewed. For those in the financial sector, legal exposure, reputational risk and sector-specific obligations are major impacts under the new offence.
The Serious Fraud Office (SFO) has been designated as the lead enforcement body under the new legislation. Failing to adequately implement such procedures put financial institutions at risk of civil litigation, reputational damage, and direct investigations. The pressure to create thorough risk assessment protocols is only increasing due to heightened regulatory scrutiny. This broadening of liability moves the focus from reactive incident responses to proactive risk governance thereby raising the bar for what regulators expect from firms under scrutiny.
Who Does the Failure to Prevent Fraud Offence Apply To?
The failure to prevent fraud offence applies to companies referred to as large organisations. They are defined by meeting two or more of the following thresholds:
£36 million in turnover
£18 million in assets
250 employees.
The parameters of this offence are assessed and put in place based on the financial year preceding the offence. Typically, organisations such as banks, insurers, investment firms, and most fintechs fall within the scope of this offence. Even smaller firms could be indirectly affected through third-party relationships or by future legislation.
Importantly, the law could extend beyond fraud to include related offences such as tax evasion or crimes impacting public revenue. This broad applicability makes it critical for firms to evaluate both direct and indirect exposure. Assessing anti-fraud procedures that prevent bribery, criminal finances or mitigate any particular risks that a person commits, keeps firms ahead of the curve. Early class-action can support firms with status, operational risk and help determine the level of procedural rigour required under the law.
Who are “Associated Persons” under Failure to Prevent Fraud?
The failure to prevent fraud offence adopts an expansive view of who qualifies as an “associated person.” This includes employees, contractors, subsidiaries, agents, and third-party service providers. Senior managers also fall within scope, reflecting a broader view of corporate responsibility. Under this definition, fraud committed by anyone acting on behalf of the organisation may result in criminal liability.
Firms must design fraud prevention frameworks that cover all contributors at risk of underlying fraud offences, not just staff that are fraud offence intending. The inclusion of non-employees and leadership elevates the importance of cross-functional risk mapping. Organisations must maintain oversight of anyone acting in their interest, especially in high-risk roles. This calls for comprehensive onboarding checks and ongoing monitoring.
Scope and Expectations of Failure to Prevent Fraud
There is often uncertainty around the scope of reasonable fraud prevention measures and the intent of the new failure to prevent fraud offence. In some cases, it is assumed that the rules apply only to internal fraud or that current policies already provide sufficient coverage. However, the offence targets any fraud by an associated person that benefits the organization. Whether it be internal or external, large businesses need to be wary of whether their Anti-Money Laundering (AML) controls fulfil the requirements.
In truth, AML frameworks address different risks and lack the targeted specificity required under this offence. Written policies alone will not satisfy regulators of these large organisations; implementation and monitoring of effective controls are essential to promoting an anti-fraud culture. The new law also demands fraud-specific measures that can withstand scrutiny from the Serious Fraud Office (SFO).
The Difference between AML Compliance and Fraud Prevention Procedures
AML compliance is fundamentally reactive, focused on detecting suspicious activity after it occurs. In contrast, the new offence demands preventive measures to stop such a fraud act before it happens. This mirrors UK corporate offence legislations such as the UK Bribery Act 2010, where companies are penalised for failing to prevent wrongdoing by associated persons. Prioritizing corporate criminal attribution demonstrate in a shift from detection to prevention. Firms must not confuse AML risk assessments with the fraud prevention requirements introduced here.
To establish a valid defence under the new offence, companies must prove they had reasonable fraud prevention procedures in place. These controls must be tailored to the business’s specific risk profile and operations. It is not enough to have generic policies; procedures must be documented, implemented, and periodically updated. Clear communication and operational visibility are also essential. This marks a shift from passive compliance to evidence-based readiness. Regulatory bodies will expect firms to demonstrate that their controls were functional at the time of the offence.
Assessing and Managing Internal Fraud Risks
Effective prevention begins with a detailed risk assessment process. Firms must identify areas of the business most vulnerable to fraud and assess how associated persons interact with these functions. Key steps include mapping high-risk business units, identifying threat vectors, and quantifying potential impacts. Prioritisation based on exposure to theft acts helps allocate controls efficiently.
Financial firms should also account for changes in fraud risk over time, driven by internal changes or external threats. This requires ongoing analysis and a willingness to adjust controls accordingly. By using tools that enable this flexibility, as strong foundation can be built through adaptive workflows and risk scoring tools. Risk mapping is essential to meet legal obligations under the new offence.
Reviewing Gaps in Existing Processes
Reviewing and strengthening existing compliance processes is necessary in avoiding duplication and ensuring legal alignment. Many firms assume that their AML tools or existing fraud policies are sufficient. However, controls must be audited against the regulations of the failure to prevent fraud offence. The review goes across onboarding, escalation, and third-party management.
Key starting points include reassessing risk-based onboarding flows, stress-testing escalation logic, and mapping out procedures. Firms should document findings and integrate updates into a formal fraud prevention framework. This type of process review signals a proactive stance on compliance to regulators.
Core Fraud Prevention Procedures Every Firm Needs
Based on regulatory guidance and industry best practices, there are key procedures every firm should adopt. These include mandatory staff training on fraud indicators, such as false representation and financial misconduct. Firms must also implement whistleblower hotlines, real-time transaction monitoring, and enhanced vetting for high-risk roles. Continuous vendor screening further helps mitigate third-party risk.
These procedures must be embedded across departments, not siloed within compliance functions. A comprehensive prevention plan should also evolve with changes in regulatory expectations or internal risk appetite. Establishing a culture of fraud awareness is equally critical for long-term effectiveness.
The Role of Due Diligence in Preventing Fraud
Under the new offence, due diligence becomes an ongoing obligation. Companies should continuously verify the legitimacy and risk profile of customers, vendors, and associated persons. Effective due diligence enables early fraud detection and strengthens a firm’s legal defence against other criminal activity such as money laundering. By identifying synthetic identities, fraudulent trading, and other financial misconduct over time, businesses can ensure thorough due diligence.
Firms should conduct Know Your Customer (KYC) and Know Your Business (KYB) checks across its entire customer, partner and employee base. KYC and KYB checks should be supported by refreshed Politcally Exposed Person (PEP) checks, sanctions and adverse media screenings. Behavioural monitoring flags suspicious activity that signal underlying fraud. ComplyCube supports these efforts through automated controls and integration-ready solutions.
You can learn more here: What is a Politically Exposed Person (PEP)?
Auditing and Evidencing Fraud Readiness
Documentation is central to demonstrating a valid defence under the new offence. Firms must keep records of training attendance, internal audits, vendor risk assessments, and case handling. These artefacts help prove that reasonable procedures were not only designed but also followed. Regulators will look for evidence that procedures were implemented at the time of the alleged offence.
ComplyCube’s reporting and audit modules allow firms to export logs, compliance reports, and process trails easily. This enables fast, transparent responses during enforcement actions or audits. Firms that build documentation into their daily workflows will be better equipped to defend against allegations. Evidencing readiness is as critical as implementing controls.
Preparing Your Board and Risk Committee
Leadership accountability is embedded in the new offence, placing boards and senior risk committees at the heart of compliance. MLROs and Heads of Fraud must ensure that decision-makers understand fraud exposure across the business. Regular reviews of KPIs, audit results, and incident reports should become standard governance practice. It is equally important to allocate resources for continuous improvements in fraud controls.
A well-defined fraud prevention plan, backed by real data, supports a strong corporate culture and legal defence. Boards should treat this offence not just as a compliance issue, but as an enterprise risk. Firms that fail to engage leadership early risk being unprepared for enforcement. ComplyCube enables actionable visibility into fraud controls across business units, supporting strategic oversight.
How ComplyCube Enables End-to-End Fraud Prevention
ComplyCube offers a unified compliance platform tailored to the demands of the new fraud offence. It enables real-time identity verification, sanctions screening, and behavioural fraud checks – all of which support the “reasonable procedures” defence. The unified platform uses custom rules through its workflow, allowing firms to implement and adjust controls to their specific risk profile without writing any code. This not only ensures flexibility, but prioritizes a quick deployment of fraud prevention measures.
Fraud detection measures can be implemented across the customer journey, providing full visibility and control. The modules cover document, biometric, and database verification, which can be coupled with connections into fraud networks, device intelligence, and fraud risk scores, enabling holistic fraud detection and insights. These purpose-built tools support proactive prevention and audit readiness. Integrated solutions such as ComplyCube will be essential as enforcement ramps up.
Key Takeaways
- The fraud offence imposes strict liability on UK financial firms, expanding the scope of corporate criminal liability for organizations.
- “Associated persons” include employees, agents, vendors, contractors, subsidiaries, and international operations.
- AML systems alone aren’t sufficient to meet the new requirements for addressing criminal offenses under the law.
- Organisations must implement comprehensive fraud prevention frameworks for addressing criminal offenses under the law.
- ComplyCube enables complete fraud defense coverage through a unified platform.
Overall Timeline of Roll-Out and Implementation
The new failure to prevent fraud offence took effect on September 1st, 2025 and initially focused on high-risk sectors such as finance and fintech. Firms with larger customer bases or public-facing operations faced higher scrutiny. The Serious Fraud Office (SFO) began leading investigations and prosecutions under this expanded framework. Regulators are expected to ask for documented proof of compliance readiness. Companies that prioritize early compliance can build a great reputation and reduce regulatory pressure.
Talk to ComplyCube‘s compliance experts to enhance your customer due diligence workflows.
Frequently Asked Questions
What is the Failure to Prevent Fraud offence?
A new UK law that holds organisations liable if someone working for them commits a specified fraud offence, including underlying fraud or makes false statements, and the company lacked adequate procedures to prevent it.
Who does the law apply to?
Large organisations in the UK, including banks, insurers, fintechs and investment firms who might have sole or dominant motivation to be obtaining services dishonestly.
What are “reasonable procedures”?
Documented and implemented fraud controls tailored to your risk profile – such as training, monitoring, and whistleblowing systems. Demonstrating this intention is key to avoiding criminal liability under the new law.
How is this different from AML compliance?
AML focuses on detecting laundering. The fraud offence focuses on preventing internal and external fraud before it happens.
How can ComplyCube help?
ComplyCube offers modular tools for identity verification, continuous monitoring, fraud risk scoring, and audit-ready compliance documentation, supporting the implementation of effective measures.
