On 1 September 2025, a new offence of "failure to prevent fraud" came into force under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) (the Offence). The purpose of this is to make it easier to hold organisations accountable for fraud committed by their associates and to incentivise organisations to implement robust fraud prevention measures.
Which organisations does the Offence apply to?
The Offence applies to all organisations (including their group companies) that meet two of the following criteria:
- have greater than 250 employees;
- have greater than £36 million turnover;
- have greater than £18 million in total assets.
The Offence applies broadly and includes both UK-based organisations and overseas organisations, provided that the relevant fraud or any gain or loss from the fraud occurs in the UK. This could therefore apply to both lenders and their borrowers should they meet the criteria listed above.
What is the Offence?
The Offence is a criminal offence and organisations can be held criminally liable where a "fraud offence" is committed by an "associate" with the intention to benefit the organisation or its clients.
- An "associate" includes an employee, an agent and a subsidiary of the organisation. Senior management does not even need to know that the associate has committed the fraud for the organisation to commit the Offence – this is a significant change from previous corporate liability for fraud. The definition of associate is wide and may include those a lender might appoint as an agent to enter into contracts on behalf of the organisation.
- A "fraud offence" includes, among other things, fraud by false representation and failing to disclose information.
- There does not need to be any actual benefit (financial or not) from the fraud, the intention to benefit is sufficient.
For lenders, this means that fraud committed by employees, agents, or subsidiaries in relation to lending activities could result in criminal liability for the lending organisation. Lenders will also need to keep in mind that their borrowers could also commit this Offence, which could have a knock-on effect on their ability to repay loans and on recoveries in an enforcement situation.
What are the consequences of committing the Offence?
If convicted, an organisation faces an unlimited fine. The court will follow sentencing guidelines when determining the amount, taking into account factors such as the organisation's size, turnover, and the seriousness of the fraud. As this is a new offence, there is limited precedent on the level of fines that will be imposed in practice.
This does not prevent separate action being taken against the "associate" who committed the fraud.
How can an organisation ensure it does not commit the Offence?
So long as an organisation has reasonable procedures in place to prevent fraud, it can defend itself against conviction.
The government has set out the following six principles that organisations should use to put their fraud prevention framework in place:
- top level commitment;
- risk assessment;
- proportionate risk-based prevention procedures;
- due diligence;
- communication (including training); and
- monitoring and review.
Key considerations for lenders
If you do not currently have robust fraud prevention procedures in place, it is essential to implement them as soon as possible. For lenders, effective procedures may include regular fraud awareness training for customer-facing staff, robust whistleblowing mechanisms, comprehensive due diligence on agents you are engaging with, clear policies on loan origination and approval processes, and periodic review and updating of fraud policies.
In respect of borrowers, while there is no precedent yet in relation to the size of the fine, if a borrower commits the Offence, this could impact the ability of borrowers to repay their loans and impact on recoveries in enforcement. Lenders should also ensure that the representations and undertakings in relation to ECCTA compliance in their loan agreements are sufficiently wide to capture the new Offence. As part of its onboarding and due diligence procedures, lenders should ensure that borrowers have an appropriate fraud prevention framework in place.
The government has published detailed general guidance on implementing these procedures: "Economic Crime and Corporate Transparency Act 2023: Guidance to organisations on the offence of failure to prevent fraud" (available on GOV.UK)".
While this new offence does increase potential criminal liability for large organisations, lenders with robust fraud prevention frameworks and proactive risk management can successfully defend against prosecution and avoid the associated fines and reputational damage and minimise the risks posed by borrowers committing the Offence.
Please get in touch if you need advice on your fraud prevention policies or training.
