‘Failure to prevent fraud’ offence regulatory alert
The Financial Conduct Authority (FCA) has issued a regulatory alert warning firms that they could face criminal prosecution for failing to prevent fraud under new legislation which came into force on 30 September 2022.
The offence of ‘failure to prevent fraud’ was introduced by the Economic Crime and Corporate Transparency Act 2022. It applies to a wide range of financial institutions, including banks, building societies, credit unions, investment firms, and electronic money institutions.
Under the new offence, firms can be held criminally liable if they fail to take adequate steps to prevent fraud by their employees, agents, or contractors. This includes fraud that is committed against the firm itself, as well as fraud that is committed against customers or third parties.
The FCA’s regulatory alert sets out a number of steps that firms should take to comply with the new legislation. These include:
- Assessing the risks of fraud that they face
- Implementing appropriate policies and procedures to prevent fraud
- Monitoring and reviewing the effectiveness of their anti-fraud measures
- Training staff on how to spot and prevent fraud
The FCA has also published a number of resources to help firms comply with the new legislation, including a guidance note and a template risk assessment.
The offence of ‘failure to prevent fraud’ is a criminal offence. This means that firms that are convicted of this offence could face a fine, imprisonment, or both.
The FCA’s regulatory alert is a reminder to firms that they need to take the new legislation seriously. Firms that fail to comply with the legislation could face criminal prosecution and could also damage their reputation.
Additional information
The offence of ‘failure to prevent fraud’ is a new offence that was introduced by the Economic Crime and Corporate Transparency Act 2022. It applies to a wide range of financial institutions, including banks, building societies, credit unions, investment firms, and electronic money institutions.
The offence is designed to make it easier for prosecutors to hold firms criminally liable for fraud that is committed by their employees, agents, or contractors. Previously, prosecutors had to prove that the firm had ‘knowingly or recklessly’ facilitated the fraud. Under the new offence, prosecutors only need to prove that the firm failed to take adequate steps to prevent the fraud.
The FCA’s regulatory alert is a reminder to firms that they need to take the new legislation seriously. Firms that fail to comply with the legislation could face criminal prosecution and could also damage their reputation.
Firms should take the following steps to comply with the new legislation:
- Assess the risks of fraud that they face
- Implement appropriate policies and procedures to prevent fraud
- Monitor and review the effectiveness of their anti-fraud measures
- Train staff on how to spot and prevent fraud
The FCA has also published a number of resources to help firms comply with the new legislation, including a guidance note and a template risk assessment.
‘Failure to prevent fraud’ offence regulatory alert
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