Failure to Prevent Fraud Requirements in the UK: What You Should Know

The UK has introduced new 'Failure to Prevent Fraud' requirements, effective 30 June 2024, aimed at cracking down on rising fraud in regulated industries. Under these rules, companies are held accountable not just for external threats but for fraudulent actions by their own employees, meaning a single colluding staff member could trigger significant legal and financial consequences. The legislation is designed to prompt organizations to reassess their internal processes, making it more difficult for fraud to slip through unnoticed and ensuring that oversight is integrated into everyday operations.

This liability extends beyond the direct involvement of organizations, covering situations where internal processes and controls are insufficient to detect or stop fraudulent activity. Financial institutions, fintech firms, and businesses in highly regulated sectors are particularly vulnerable to both the risk of their employees committing fraud and to fines if their companies are found to be non-compliant, as regulators and courts increasingly scrutinize how organizations manage internal risk.

The stakes are high: beyond financial penalties, a company’s reputation and long-term credibility can be damaged if a “failure to prevent fraud” is detected. The growing sophistication of internal and external fraud schemes, often supercharged by advanced technology, requires improved internal controls. In this new context, organizations and compliance teams are therefore expected to design processes that make fraud more difficult to commit, detect anomalies early, and ensure accountability at every stage.

This article explores in detail the “Failure to prevent fraud” regulatory framework, practical risks related to non-compliance, and preventive measures that UK companies can implement to protect against employee-led fraud on an ongoing basis.

Known profile cases and fines

The financial and reputational consequences of failing to prevent fraud are increasingly severe for UK organizations. Recent cases demonstrate that companies can face not only substantial monetary fines but also public scrutiny and long-term damage to stakeholder trust.

A Liverpool-based company suffered a loss of over £318,000 after an internal fraud scheme was carried out by an employee colluding with external actors. The investigation revealed weaknesses in the company’s internal controls, highlighting the importance of proactive fraud prevention measures (Source: Liverpoolecho.co.uk).

Also, questions were raised over NatWest’s involvement in the collapse of a £200 million business group, with scrutiny on whether due diligence and fraud prevention mechanisms could have mitigated the losses. This case illustrates how even established financial institutions are not immune to reputational and regulatory risks when oversight fails. (Source: TLWSolicitors.co.uk).

Broader trends: according to UK regulatory updates and financial crime reports:

• Over £500 million in fines and settlements were imposed on UK organizations between 2023 and 2025 for failures related to preventing internal and external fraud.
• More than 70% of enforcement actions involved companies where internal employees were complicit or where internal controls were insufficient.
• Public trust and stakeholder confidence were cited as key drivers of reputational damage, often impacting market performance and future business opportunities.

These cases emphasize a critical point: organizations are legally responsible for preventing fraud, even if the perpetrators are employees or agents. Companies cannot rely solely on reactive measures; robust prevention systems, real-time monitoring, and well-documented audit trails are essential to reduce risk exposure.

Understanding the FTP offense

The imminent implementation of the Failure to Prevent Fraud (FTP) offense in the UK, effective from 1 September 2025, is designed to hold organizations legally accountable when fraud occurs within their operations, including cases where employees or associated persons are involved. This offense shifts the focus from individual perpetrators to the organization itself, making companies responsible for implementing adequate prevention procedures.

Key aspects of the FTP offense include:

• Scope of the offense: the law applies to companies of all sizes and sectors. An "associated person" can be any employee, officer, or agent acting on behalf of the organization. The offense covers a wide range of fraudulent activities, from internal embezzlement to collusion with external actors, including money laundering and other financial crimes.
• Intention to benefit: central to the offense is whether the fraud was committed with the intention to benefit the organization, directly or indirectly. Even if the organization did not authorize the act, failure to prevent fraud that benefits the company can trigger liability. This makes proactive risk management critical, as companies cannot rely solely on proving a lack of knowledge.
• Organizational responsibility: the FTP offense emphasizes that preventive frameworks must be in place, documenting how fraud risks are identified and mitigated. This includes implementing internal controls, real-time monitoring, and audit trails to detect unusual patterns before they result in significant loss.

Implications across sectors:

• Financial services: banks and fintechs are particularly exposed, as fraud involving money mules or manipulated accounts can occur quickly if oversight is weak.
• Corporate entities: large groups with complex structures must ensure that subsidiaries and affiliates comply with unified fraud prevention procedures.
• SMEs: smaller organizations may lack dedicated compliance teams, increasing the importance of automated processes and straightforward risk assessments.

In practice, the FTP offense underscores the principle that organizations are responsible for both prevention and oversight, ensuring that no fraud can occur without some level of organizational complicity or negligence. With these new rules, implementing comprehensive fraud prevention procedures is actively moving beyond being a precaution to being a legal obligation.

Legal and financial implications of non-compliance

Non-compliance with the Failure to Prevent Fraud (FTP) offense carries severe legal and financial consequences for organizations. The legislation makes it clear that liability is not limited to the individuals committing fraud but extends to the company itself, meaning organizations can face unlimited fines if found guilty.

Key considerations include:

• Financial penalties: organizations convicted under the FTP offense can be subject to unlimited fines, which may be levied in proportion to the severity and scale of the fraud. In addition to regulatory fines, businesses may face civil claims from affected customers or partners, multiplying potential financial exposure.
• Reputational damage: beyond direct financial loss, non-compliance can severely erode trust with customers, investors, and regulators. Negative publicity following a fraud incident can lead to loss of business, decreased market value, and difficulty attracting future investment.
• Operational consequences: a failure to prevent fraud often triggers regulatory investigations, internal audits, and operational scrutiny. These actions can divert resources away from core business activities and slow down growth initiatives, while also exposing weaknesses in corporate governance and compliance frameworks.
• Broader implications for stakeholders: non-compliance can undermine confidence among employees, partners, and clients. Stakeholders expect organizations to actively prevent fraud, and repeated failures may result in heightened oversight, additional reporting requirements, and even restrictions on business operations.

In essence, non-compliance with FTP requirements affects the organization’s credibility, operational stability, and long-term viability, in addition to monetary losses. Preparing for compliance is therefore both a legal imperative and a strategic necessity.

Compliance requirements and reasonable fraud prevention procedures

To mitigate risk under the Failure to Prevent Fraud (FTP) offense, organizations must implement reasonable fraud prevention procedures. The UK government’s guidance highlights that there is no one-size-fits-all approach; procedures must be tailored to the size, complexity, and nature of the business, ensuring that fraud risks are addressed. The provided guidance is then structured around six core principles, each serving as a cornerstone for effective compliance:

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1. Top-level commitment

• Senior management must actively promote a culture of integrity and fraud awareness.
• Commitment should be visible and demonstrable through policies, resource allocation, and leadership behavior, signaling that fraud prevention is a strategic priority.

2. Risk assessment

• Organizations should regularly assess their operations for vulnerabilities, including both internal fraud risks (employees or agents) and external risks (clients, suppliers, or partners).
• Risk assessments must be documented and updated, providing a baseline for targeted preventive measures.

3. Proportionate fraud prevention procedures

• Fraud prevention measures should be scaled to the business’s size, complexity, and sector-specific risks.
• Small and medium enterprises may implement streamlined checks, while larger organizations require multi-layered automated systems, real-time monitoring, and audit trails.

4. Due diligence

• Organizations must vet all associated persons, including employees, agents, and third parties, to reduce the risk of fraud.
• This includes background checks, verification of credentials, and ongoing monitoring to detect anomalies or suspicious behavior early.

5. Communication and training

• Fraud prevention policies must be communicated clearly across the organization, ensuring that all employees understand their role in mitigating risk.
• Regular training sessions and awareness programs help embed a fraud-aware culture, enabling staff to spot and report suspicious activity.

6. Monitoring and review

• Fraud prevention procedures should be continuously monitored and reviewed to maintain effectiveness and adapt to emerging threats.
• This includes auditing the implementation of controls, tracking performance metrics, and updating procedures in response to regulatory changes or internal findings.

The effectiveness of fraud prevention depends on contextual application. For example, a financial services firm with high transaction volumes may require automated transaction monitoring, anomaly detection, and real-time alerts, whereas a smaller business may rely on manual oversight and periodic internal audits.

Compliance by design: using technology to prevent fraud from within

"Compliance by design” makes fraud prevention an active part of everyday operations rather than a back-office afterthought. Automated controls and real-time risk scoring monitor both employee actions and customer interactions, making internal collusion far more difficult. Continuous audits and instant alerts catch suspicious activity as it happens, while detailed records provide clear evidence of due diligence under the FTP offense.

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Preparing for the FTP offense: steps organizations should take

With the Economic Crime and Corporate Transparency Act 2023 bringing the Failure to Prevent (FTP) offense into sharper focus, organizations must assess and strengthen their fraud prevention frameworks. One of the main goals is to minimize exposure to financial, operational, and reputational risks. Here are the key steps that should be taken:

Conduct a comprehensive fraud risk assessment

• Begin by mapping all potential points of fraud exposure, regardless of whether they are internal or external.
• Identify vulnerable areas such as employee access to high-risk accounts, onboarding processes, transaction approvals, and areas where third-party partners interact with your systems.
• This assessment should also consider industry-specific risks: for example, finance, fintech, and cryptocurrency platforms may face sophisticated attempts to launder money or bypass KYB checks.

Develop a fraud prevention framework

• Use the results of the risk assessment to design a tailored fraud prevention framework aligned with the six guiding principles outlined by the UK government.
• Implement automated controls, monitoring, and reporting mechanisms to ensure consistent enforcement across all levels of the organization.
• Consider employee education and training, emphasizing their role in fraud prevention and the importance of adhering to automated controls.

Implement reasonable procedures

• Ensure that all processes are proportionate to the size, complexity, and risk profile of the organization.
• Procedures should include pre-screening of new accounts, monitoring for suspicious activity, and real-time alerts for potential fraudulent behavior.
• Document all procedures, updates, and internal reviews to provide evidence of due diligence and proactive measures.

Continuous monitoring and improvement

• Fraud risks evolve constantly, and so should your defenses.
• Regularly review and update procedures, incorporating new technology, lessons learned from incidents, and intelligence on emerging fraud tactics.
• Engage with industry groups or external experts to benchmark your fraud prevention practices and ensure your framework remains robust and current.

Following these steps, organizations have ensured compliance with the FTP offense, thus reducing the likelihood of both external and internal fraud. It’s also clear evidence to regulators that reasonable fraud prevention procedures are in place.

Take action before the FTP offense comes into force

The Failure to Prevent (FTP) offense under the Economic Crime and Corporate Transparency Act 2023 makes it clear: organizations are responsible for preventing fraud, even when it involves internal actors. Businesses that fail to implement structured, automated, and auditable fraud prevention measures face severe financial, legal, and reputational consequences.

To protect your organization:

• Conduct a full fraud risk assessment to understand vulnerabilities across employees, systems, and processes.
• Implement automated procedures, risk scoring, and real-time monitoring to detect and block suspicious activity before it escalates.
• Ensure continuous review and improvement of processes, keeping them aligned with regulatory guidance and emerging threats.

To build a powerful immunity against modern-day external and internal fraud, reach out to our experts and see how you can keep your organization protected and compliant.

FAQs

What is the Failure to Prevent (FTP) offense?
The FTP offense makes organizations legally responsible if their employees or agents commit fraud and the company lacks reasonable preventive procedures. It emphasizes that liability exists even for internal fraud, highlighting the need for strong internal controls.

Who qualifies as an “associated person” under the FTP offense?
An associated person can include employees, agents, contractors, or anyone acting on behalf of the organization. The law focuses on ensuring the organization cannot evade responsibility simply because the fraudulent activity was conducted by a third party.

How can technology help organizations comply with the FTP offense?
Automated systems, audit trails, and risk scoring make it harder for employees to commit fraud undetected. These tools also provide real-time alerts and documentation, demonstrating due diligence in fraud prevention to regulators.

What are the consequences of failing to prevent fraud?
Organizations can face unlimited fines, regulatory scrutiny, and severe reputational damage. Stakeholders may lose trust, which can affect partnerships, customer retention, and long-term business viability.

What steps should companies take to prepare for the FTP offense?
Businesses should perform comprehensive fraud risk assessments, implement automated monitoring procedures, and ensure all employees are trained in compliance protocols. Continuous review and improvement of these processes is critical to remaining compliant and mitigating fraud risks.

When does the FTP offense come into effect?
The Failure to Prevent Fraud (FTP) offense becomes enforceable on 1 September 2025 in the UK. Organizations should aim to have all reasonable fraud prevention procedures fully implemented before this date to demonstrate compliance and minimize liability.