Fraud and Insolvency: key trends from 2024 and predictions for 2025
Insight
"Failure to prevent fraud"
The Economic Crime and Corporate Transparency Act (ECCTA) 2023 will continue to loom large in the year ahead, as firms take the necessary steps to ensure compliance with the new "failure to prevent fraud" duty, which takes effect in September.
For those businesses in scope and yet to review their compliance procedures, there is still time to devise the necessary policies and to train staff. As part of this process, international supply chains, including operations in jurisdictions where corruption is more common, will need to be combed for potential risks and weaknesses, since fraud sometimes manifests itself in outsourced accounting and finance functions.
There may be early rumblings of enforcement activity in 2026 but given these will be in response to specific incidents, the first cases are more likely to emerge in 2027. Regardless, the failure to prevent duty will hang over the market throughout 2025 and beyond.
Freezing injunctions: Dos Santos v Unitel
Where we might be left waiting for the first failure to prevent enforcement cases, 2025 will likely see an increase in applications for freezing injunctions thanks to a significant court ruling in Dos Santos v Unitel SA, which appears to have significantly reduced one important part of the bar for a successful application for a freezing order.
Long considered the Court’s nuclear option, successful applications previously had the task of proving a "good arguable case". Now applicants need only demonstrate that there is a serious issue to be tried, a significantly lower evidential threshold.
Interim freezing injunctions are usually granted in secret and the underlying claims are often then resolved before any public Court proceedings are issued, so any actual increase in their use will be difficult to gauge. However, given the new legal landscape, lawyers may now feel that they have easier access to a an important weapon in their arsenal, which could fuel an increase in applications.
APP fraud
A fixture of media headlines last year, the Payment Systems Regulator mandatory reimbursement framework for authorised push payment fraud (APP) will remain important in 2025. Individuals who have lost sums that exceed the £85,000 reimbursement cap could end up reaching for litigation targeted at receiving banks. Each case will turn on its own merits, but arguments could centre on allegations that banks should have spotted and forestalled sizeable payments that deviated from an individual’s usual behaviour.
History suggests that such claims will encounter a high bar to clear and, looking ahead, it is difficult to see how many future claims could enjoy a different outcome. With more than half a billion pounds lost to APP fraud in the first half of 2024 alone, a more likely scenario is that the risk of a hefty reimbursement bill prompts banks to invest more heavily in checks and systems to detect and prevent fraud in the first place, rather than having to foot the bill for the consequences of fraud in the end.
Insolvency litigation
With uncertainty continuing to hang over the economy in 2025, there is the prospect of an increase in insolvencies, and it is often when insolvency practitioners enter insolvent businesses, that a trail of fraudulent activity is detected.
The uncovering of fraud within private businesses, with attendant creditor prioritisation claims, will be a feature of 2025 as insolvency practitioners potentially uncover evidence that owner-operators took steps to protect their own financial positions above those of their creditors. Those steps will inevitably be subject to challenge by the IPs and that is likely to be another source of litigation in 2025.
Cryptocurrency fraud set to rise?
The FCA is moving to regulate cryptocurrency more tightly, but the reality is that developments within the industry have outstripped the pace of regulatory change. This, coupled with the soaring price of cryptocurrencies such as Bitcoin, looks set to create fertile ground for fraud to flourish – not least because cryptocurrencies have proven increasingly popular amongst retail investors. This should in turn be expected to lead to a higher volume of litigation in the wake of "get rich quick" schemes.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2025
Dispute resolution trends and predictions
This insight is part of our wider report – "Dispute resolution trends & predictions" – which includes comprehensive analysis from our specialists together with valuable viewpoints from our clients.
