As of 1 September 2025, the UK’s new Failure to Prevent Fraud offence is officially in force. Introduced under the Economic Crime and Corporate Transparency Act 2023, this landmark legislation creates a corporate criminal offence that holds large organisations liable for fraud committed by employees, agents, subsidiaries, or other “associated persons”—unless they can demonstrate that reasonable fraud prevention procedures were in place [1].
While the offence is targeted at large organisations, its implications ripple across the legal sector, including SRA-regulated firms, especially those advising corporate clients or operating within high-risk areas such as conveyancing, trust and company formation, and financial transactions.
This blog post breaks down what the new offence means, how to determine if your firm is affected, and what steps you should take to ensure compliance and support your clients.
What Is the Failure to Prevent Fraud Offence?
The offence is designed to drive an anti-fraud culture across UK businesses and public bodies. It mirrors the structure of the Failure to Prevent Bribery offence introduced in 2010, which significantly reshaped corporate compliance practices.
Under the new law, a large organisation can be prosecuted if:
- A person associated with the organisation commits a fraud offence intending to benefit the organisation or its clients.
- The organisation did not have reasonable procedures in place to prevent such fraud [2].
Importantly, it is not necessary to prove that senior managers or directors knew about or authorised the fraud. Liability arises from the failure to prevent it.
Who Does the Offence Apply To?
The offence applies to large organisations, defined as those meeting two or more of the following criteria [3]:
- More than 250 employees
- Annual turnover exceeding £36 million
- Balance sheet total exceeding £18 million
This includes:
- Companies and partnerships formed under UK law
- Charities and public bodies that meet the size criteria
- Overseas organisations with a UK nexus (e.g. operating in the UK or targeting UK customers)
Small law firms and sole solicitors are generally not directly in scope of the offence. However, if you work within or advise a large organisation, or act as a subsidiary or agent, you may be indirectly affected.
What Types of Fraud Are Covered?
The offence applies to a wide range of “base fraud” offences, including:
- False representation (e.g. misleading investors or consumers)
- Failure to disclose information
- Abuse of position
- Dishonest sales practices
- Fraud in financial markets
These offences are listed in Schedule 13 of the Act and cover both traditional and emerging fraud risks [3].
What Is the Defence?
Organisations can defend themselves by demonstrating that they had reasonable fraud prevention procedures in place at the time the fraud occurred. This includes:
- Top-level commitment to fraud prevention
- Risk assessments tailored to the organisation’s operations
- Proportionate procedures based on risk exposure
- Due diligence on associated persons
- Training and communication
- Monitoring and review mechanisms
The standard of proof is the balance of probabilities, and courts will assess whether the procedures were reasonable in the context of the organisation’s size, complexity, and risk profile [3].
Implications for Small Law Firms and Sole Solicitors
1. Advising Large Clients
If your firm advises large organisations, you must understand the offence and help clients assess their exposure. This includes:
- Reviewing fraud risks in contracts and transactions
- Advising on internal controls and governance
- Supporting investigations and self-reporting
Action point: Familiarise yourself with the Home Office’s official guidance and incorporate it into your client advisory work.
2. Acting as an Associated Person
If your firm provides services on behalf of a large organisation, you may be considered an associated person. This means your actions could trigger liability for the organisation.
Action point: Ensure your own fraud prevention procedures are robust. Document your due diligence and maintain clear records of client instructions.
3. Supporting Internal Compliance
Even if your firm is not in scope, the principles of the offence represent best practice. Implementing fraud prevention procedures can:
- Protect your firm from reputational harm
- Strengthen client trust
- Prepare you for future regulatory developments
Action point: Conduct a fraud risk assessment and update your policies, controls, and procedures (PCPs) accordingly.
4. Training and Awareness
The offence highlights the importance of staff training. Fee-earners and support staff must understand:
- What constitutes fraud
- How to spot red flags
- When to escalate concerns
Action point: Include fraud prevention in your AML and ethics training programmes. Use case studies and examples from the guidance to illustrate key points.
What Should Firms Do Now?
Review Client Relationships
Identify clients who meet the large organisation criteria. Assess whether your firm acts as an associated person and whether your services could expose them to fraud risk.
Update Engagement Letters
Consider including clauses that clarify your firm’s role and responsibilities in relation to fraud prevention. This can help manage expectations and reduce liability.
Strengthen Internal Controls
Even if you’re not directly in scope, implementing fraud prevention procedures is good governance. Focus on:
- Risk-based client onboarding
- Transaction monitoring
- Escalation protocols
Monitor Regulatory Developments
The SRA, CPS, and Serious Fraud Office (SFO) have all signalled increased enforcement activity. Stay informed about:
- Sector-specific guidance
- Case law developments
- Updates to the Economic Crime and Corporate Transparency Act
Final Thoughts
The Failure to Prevent Fraud offence marks a significant shift in how the UK tackles corporate crime. For small law firms and sole solicitors, the direct impact may be limited—but the indirect implications are substantial.
Whether you’re advising large clients, acting as an associated person, or simply seeking to strengthen your own compliance framework, now is the time to act. By understanding the offence, updating your procedures, and training your team, you can protect your firm, support your clients, and contribute to a stronger anti-fraud culture across the legal sector.
References
[1] New measures to tackle fraud come into effect – GOV.UK
[2] Organisations must prepare now for new fraud prevention law
[3] Guidance to organisations on the offence of failure to prevent fraud