’The direct scope of the offence applies only to the very largest companies, but the ripple effects will be felt throughout supply chains, bringing smaller businesses into scope as associated persons,’ says underwriter

A new corporate criminal offence that holds large organisations accountable for failing to prevent fraud came into effect today (1 September 2025), prompting warnings that boards must strengthen governance and fraud controls.

The offence, introduced under the Economic Crime and Corporate Transparency Act 2023, allows businesses to be prosecuted if an employee, agent, subsidiary or other associated person commits fraud for the organisation’s benefit.

To defend themselves, companies must show that they had reasonable fraud prevention procedures in place.

Government ministers have pitched the measure as a cultural reset for UK corporate governance, echoing the impact of the Bribery Act 2010. With fraud now accounting for around 40% of all crime in England and Wales, officials have signalled that enforcement will be a priority.

Ripple effects

Craig Watson, underwriter at Kayzen Specialty, said the legislation represented “a reinforcement of criminal responsibilities facing directors and officers of UK businesses”.

He explained: “The direct scope of the offence applies only to the very largest companies, but the ripple effects will be felt throughout supply chains, bringing smaller businesses into scope as associated persons. All businesses will increasingly be expected to demonstrate robust fraud prevention measures.”

Watson added that directors who fail to demonstrate effective monitoring, whistleblowing channels and training could face personal liability.

He said: “Ignorance is no longer a viable defence. The value of D&O cover and management liability insurance is further underscored as the scope of this legislation may well expand.”

Insurer perspective

For insurers, the legislation is seen as both a compliance challenge and an opportunity to support clients.

Adele Sumner, head of counter fraud strategy and financial crime at RSA, said the measure would push fraud “onto the boardroom agenda” across the industry.

She explained: “It’s important to remember that this legislation applies to all large firms and is not unique to the insurance sector. But for us, it does mean fraud will be discussed more at board level and that’s a good thing.

”Top-level awareness and commitment to tackling fraud should be welcomed, especially given that fraud accounts for around 40% of all recorded crime.”

She also warned that SMEs, which often lacked dedicated fraud teams, could struggle with the new demands.

“Insurers and brokers have a key role to play in helping clients navigate what, for many, is uncharted territory,” Sumner said. “We need to be proactive in explaining how the legislation could affect them and offering practical guidance to strengthen their anti-fraud measures.”

Ben Fletcher, director of fraud at Allianz, agreed the measures represented a cultural step change. He said: “This new offence really turns the dial on our collective responsibility for stopping fraud.

”Importantly, we also have a responsibility not just for our own firms, but also for any associated party which could, for example, be a partner or supplier.

“For firms that are already taking fraud seriously, this should be an evolutionary step rather than a revolution. This offence certainly turns the dial in holding senior managers accountable and encourages the development of a strong anti-fraud culture.”

Businesses affected

RSA said that according to government figures, nearly 25,000 businesses could face criminal liability under this legislation, “which marks a significant shift in corporate accountability”.

Dr Matthew Connell, director of policy and public affairs at the Chartered Insurance Institute, said the regulation would directly affect both insurers and brokers.

He explained: “Directors of companies that are prosecuted under the regulation will often look to D&O cover to help meet legal costs and regulatory investigations. Brokers also have an opportunity to add value by ensuring customers’ cover is appropriate in the light of the new regulations.”

Connell added that brokers should be able to advise on compliance steps such as developing policies, implementing training and carrying out due diligence on agents, clients and suppliers.

“The defence of ‘reasonable procedures’ provides an incentive to adopt effective policies backed by robust training and due diligence,” he said.

“This measure will concentrate minds on fraud at both an individual and corporate level.”

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