Practical Takeaways from the UK Government’s Guidance on Failure to Prevent Fraud

Practical Takeaways from the UK Government’s Guidance on Failure to Prevent Fraud

According to an article by A&O Shearman, the UK’s new corporate offense of failure to prevent fraud, effective September 1, 2025, requires businesses to implement “reasonable” fraud prevention procedures. Compliance teams doing business in the UK must assess fraud risks and develop proportionate strategies to mitigate potential liability.

The article highlights the following key compliance principles:

1. Top-Level Commitment:
   Leadership must cultivate a zero-tolerance culture toward fraud. Boards and senior management should designate fraud prevention responsibilities, ensure the Head of Compliance has access to leadership, allocate specific budgets, and encourage whistleblowing.
2. Risk Assessment:
   A tailored risk assessment is essential. Organizations must identify associated persons (e.g., agents, contractors) and assess how they might facilitate fraud. Understanding the “fraud triangle” (opportunity, motivation, rationalization) helps pinpoint vulnerabilities.
3. Proportionate Prevention Procedures:
   Fraud prevention plans should align with identified risks and organizational complexity. Measures may include pre-employment checks, anti-fraud training, and adjusting bonus structures that incentivize risky behavior. Document any decisions not to implement specific controls.
4. Due Diligence:
   Due diligence should extend to associated persons and M&A activities. Contracts must include anti-fraud clauses, and third-party integration should address fraud risks post-acquisition.
5. Communication & Training:
   Fraud prevention requires organization-wide training tailored to risk levels. Whistleblowing policies must be well-communicated, and middle management must reinforce anti-fraud messaging from senior leaders.
6. Monitoring & Review:
   Fraud prevention frameworks must be continuously monitored, stress-tested, and updated based on internal incidents, sector developments, and legal changes. Independent investigations of suspected fraud should be well-documented and escalated to the board.

Next Steps

Businesses should prioritize risk assessments, revise existing policies, enhance whistleblowing mechanisms, and develop playbooks for fraud investigations. Preparing now ensures compliance with the UK’s failure to prevent fraud offense and mitigates potential enforcement actions from regulators like the FCA and Pensions Regulator.