The Economic Crime and Corporate Transparency Act made significant changes to corporate law when it was brought in during 2023. There’s every likelihood that some companies will only begin to realise the significance of changes after they violate it. Now there’s no limit on the size of financial penalties, up from £60,000.
The ECCTA places more responsibility on corporations to implement reasonable fraud prevention procedures. It’s incredibly important to have the right safeguards in place. For the ultimate solution in payment fraud prevention, partner with Trustpair.
Economic Crime & Corporate Transparency Act: Definition
The Economic Crime and Corporate Transparency Act is a law for businesses. It increasing the scope for criminal liability when senior leaders fail to prevent a fraud offence. It’s made up of two parts:
- Changes to the information that businesses must give to the Companies House register (such as company directors) for improved transparency of beneficial ownership
- Wider fraud consequences leading to a need for increased fraud prevention measures
ECCTA’s main principles and objectives
The overall aim for the ECCTA is to bring down the frequency of corporate fraud cases, both perpetrated by insiders and professional attackers. In fact, a 10% reduction in fraud by December 2024 was the original goal for the government. Unfortunately, it rose by 19% in 2024 alone.
One of the key principles is the regular review of your anti-fraud measures. This proves that you’re doing all you can to stop money laundering, data breaches, impersonators, and cyberattackers. Within this objective, it’ll be unclear how ‘well’ each company is adhering to the rules unless a fraud event occurs. Unfortunately, this means that those who do fall victim to fraudsters may also experience a regulatory enforcement action too.
Due to the new responsibilities for senior management, firms must be quick to report changes to their senior manager line up (beneficial owners), including certain provisions like extra background checks on fraud.
The March 2024 update to Companies House registration includes:
- Greater investigative powers for Companies House in verifying details on the register, such as the ability to challenge information an annual confirmation statement or existing company directors (people with control)
- The power to delete inactive companies from the register
- More controls over company names
- Enforcing firms to provide a registered email address alongside physical addresses, which must be confirmed up on every confirmation statement
Who does the Corporate Transparency Act 2023 apply to?
The Corporate Transparency Act 2023 applies to “large organisations” that meet two of the following three criteria:
- More than 250 employees
- Turnover exceeding £36 million
- Balance sheet total exceeding £18 million
It is industry-agnostic, meaning that the Economic Crime Act applies whether you’re in the private sector, partnerships and not-for-profits. It’s a UK company law applying to UK-based companies, or any foreign business with registered office addresses in the UK. This means it also applies to all existing companies registered on Companies House.
Specifically, the individuals who should take most notice of the Corporate Transparency Act are ‘Associated Persons’. They’re the corporate directors, employees, consultants and partners who could be held liable for failure to prevent a fraud offence or money laundering.
Failure to prevent fraud: Compliance for organizations
The Failure to Prevent Fraud Act will be officially enforced from September 2025. After the success of the ‘Failure to Prevent Bribery’ regulation, the government is aiming for this to have a similar effect on company culture.
For example, false representation selling practices, in the name of profit and commission may be incentivised under a fraudulent business. A financial advisor may recommend an unsuitable product to a customer, ignoring their due diligence requirements because this product offers a higher amount of commission.
In the event of a court case, firms would have to provide evidence that their organisation had put reasonable prevention measures in place. In this example, disencouraging the practice of misselling by standardising compensation methods, and enforcing changelog records would hold individuals accountable for their actions.
Thus, supporting that the business does not encourage a culture of fraud or money laundering – whether actively or through a failure to implement internal controls.
Internal controls for compliance may include with the economic crime offences rule:
- Access controls – including confidentiality restrictions based on role or seniority
- The segregation of duties, promoting the four eyes principle
- Detective controls, such as behaviour analysis to flag when some one is acting differently to usual
Penalties for ECCTA non-compliance
The most alarming non-compliance penalty for many corporations will be the lack of ceiling around fines. Previous violations were capped at £60,000, but after the Failure to Prevent Fraud Act is introduced, it will become unlimited. This puts huge pressure on firms to comply, because a fine under the new offence could absolutely have a much larger impact than before.
Companies House has new powers to fine under the act, with a ceiling of up to £10,000 per offense. They can also remove companies from the register, freeze assets, and place companies under filing restrictions while they verify the submitted information.
Next steps for UK companies
A big deadline is coming up for UK Companies – September 1st 2025 brings the deadline for the Failure to Prevent Fraud Act.
Therefore, corporates must focus on the race to compliance:
- Review and audit your existing policies to check for compliance gaps
- Perform a risk assessment
- Implement the necessary changes, including governance policies and personnel responsibility changes, including those with a significant role in fraud prevention to ensure full ECCTA compliance
- Add the right technology to enhance efficiency and meet requirements with confidence for future activities
One such technology is Trustpair. With an account validation platform, we verify the payment details of any outgoing payment before it can leave your account. It can’t be manually overridden by employees within the business, protecting your firm from fraudsters and strengthening any ‘Failure to Prevent Fraud’ case.
The second part of the Economic Crime Act – the Companies House changes, will also require firms to resubmit their information, including these new fields, to the register. Firms should revalidate the backgrounds of their senior managers and aim for a transparent culture throughout the business.
A short summary of the ECCTA
A culture of responsibility is the theme of the EECTA. With more checks for senior managers and extra info required on Companies House, it’s the ‘Failure to Prevent Fraud’ Act that may cause the most concern. Firms will now have to prove they’ve done everything possible to stop fraud; risk assessments, strong policies and partnering with Trustpair can help.
