Prevention is Better than Cure: ECCTA Offence Comes into Force

Last week (1 September) marks the next stage in the UK government's reforms aimed at reducing fraud in the financial services sector, with the enforcement of the corporate “failure to prevent fraud” offence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA).

Why it matters

As discussed more fully in our article of earlier this year, the implications for financial institutions within the scope of ECCTA (more than £36 million in turnover, £18 million in assets, or 250 employees) are significant:

•          The complexity of financial products (and the number of firms and individuals involved in the value chain) mean that firms in the financial sector are particularly exposed.
•           The actions of relationship managers, client advisors and even third-party service providers could open a firm to significant liabilities, even where the firm’s clients have suffered no detriment or the firm itself has not gained an advantage.

Reasonable procedures

While most firms will already have taken steps to implement and, just as importantly, document the “reasonable procedures” that may assist in defending any claims under ECCTA, now is an opportune time to sense-check those procedures and ensure senior managers are aware of the expectations. Check the UK Government website for more information.

Insurance and Liability

As the law comes into force, it will also be essential to consider the extent to which firms’ insurances can protect against some of the exposures (outlined in more detail in our previous article) that may arise in connection with ECCTA, such as criminal defence costs and mitigation cover (under civil liability policies) and cover for regulatory interviews and investigations (under D&O insurance).