A View From The Exchange: Ashurst's key takeaways from the Government's Guidance on the new failure to prevent fraud offence

The Government has today published its much-awaited Guidance to organisations on the failure to prevent fraud.  The Government has taken on board the representations made by industry bodies for a longer nine-month implementation period.  This is welcome.  But it is also an acknowledgment that there will be significant work organisations need to undertake to be ready for the roll-out of the offence.

Our five first-impression takeaways: 

1. The commentary on how to build reasonable fraud prevention procedures goes beyond existing failure to prevent guidance. Here we see much greater detail on the practical steps senior management can take to foster a counter fraud culture. Businesses will welcome direction on how to develop and conduct a risk assessment using nominated risk owners in the business - which is the foundational step to compliance.
2. Vitally, in the wake of last week's budget, the Guidance states that is not necessary to duplicate existing work. The Government acknowledges that many large companies will already be subject to existing regulations - such as financial reporting or health and safety and competition law compliance frameworks - for which they will have processes which may mitigate the risk of fraud. This will be welcome news - albeit the guidance makes clear that compliance with other frameworks may not be sufficient, on its own, to constitute the defence of reasonable procedures, and that organisations should adapt their procedures to take account of the new offence.
3. The Guidance demonstrates an appreciation that the new offence sits within an existing eco-system of financial crime compliance. It encourages businesses to use, among other sources, the UK Corporate Governance Code, case law, practitioners' texts and accountancy profession journal articles to identify fraud indicators and the measures to act on them. This aspect of the guidance shows a welcome richness and maturity, but the expectation will likely require a change in approach for many legal and compliance teams.
4. One of the most interesting features of the Guidance is the emphasis on the importance of whistleblowing processes as part of an effective fraud prevention framework. This will no doubt be welcomed by the Serious Fraud Office and other bodies for whom the protection of whistle-blowers - and whether to pay them - are top of the agenda in the public debate about detecting and investigating economic crime.
5. For hints at target areas for investigation and enforcement, we see ESG as a potential focus. Example scenarios called out in the guidance include manipulating accounts to attract investors, misstating ESG credentials of financial products, and fraud connected to environmental crime. Financial institutions will want to take note of potential greenwashing - an area we see enforcement authorities keen to prioritise.