A new corporate criminal offence of 'failure to prevent fraud' comes into effect today and will hold large organisations to account if they profit from fraud.

The new law is designed to drive an anti-fraud culture and improve business confidence.

It has been introduced as part of the Economic Crime and Corporate Transparency Act 2023.

Alexandra Roberts, head of regulatory policy and compliance at PIMFA said: “The failure to prevent fraud offence marks the latest development in a long-running drive to improve standards and strengthen trust in financial services.

“It will occur when an employee, agent, subsidiary or other associated person commits fraud with intent to benefit their organisation, and the organisation does not have reasonable procedures in place to prevent it.

“The offence will make it significantly easier for authorities to prosecute around fraud, and we have seen early indications that the Serious Fraud Office will be taking a more active role as a result.”

Under the new law large organisations can be held criminally liable where an employee, agent, subsidiary, or other ‘associated person’ commits a fraud intending to benefit the organisation.

Examples include:

• dishonest sales practices
• hiding important information from consumers or investors
• dishonest practices in financial markets

Ms Roberts said: “The offence marks a significant shift in emphasis around fraud, firmly placing responsibility on the shoulders of firms. The onus is now on firms to demonstrate they have robust internal systems and staff training in place to prevent fraud.

“The days where firms could deal with fraud on a purely reactive basis are now long gone, as the new offence compels firms to take a proactive approach to mitigating fraud risk within their organisations. The offence also forces firms to consider outward fraud, where the firms is the beneficiary, as well as inward fraud, where the firm is the victim.”

If it is prosecuted, an organisation will now have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time the fraud was committed.

Nick Ephgrave, director of the Serious Fraud Office, said: "This is a significant new tool for prosecutors to tackle serious and complex fraud which damages UK business and undermines our economy. The SFO is ready to act if corporates fail to comply with their new responsibilities.”

Lord Hanson, Fraud Minister, said: "Fraud is a shameful crime, and we are determined to bring those responsible to justice wherever it takes place.”