ECCTA failure to prevent fraud for private equity and investment managers
Private equity firms and investment managers work through a network of placement agents, portfolio company management teams, advisers, and deal intermediaries. Where these parties commit fraud for the firm's benefit — inflated carried interest calculations, fraudulent investor reporting, or undisclosed fees — the ECCTA failure-to-prevent-fraud offence may be engaged. DefenceFile organises the evidence that prevention procedures existed and operated across that network.
Not sure if you are in scope? Most private equity and investment management that meet the large-organisation size test are in scope — check the size test or the scope Q&A.
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Why private equity and investment management tend to be in scope
Larger private equity houses, their management companies, and affiliated general partners may meet the large-organisation size test when assets under management and group headcount are considered. UK-regulated activities, UK investor bases, and UK-incorporated funds or GPs give the UK-nexus question clear scope to assess.
Scope is a legal assessment that turns on your group size and facts. See the UK-nexus and scope Q&A and reserve the conclusion for qualified reviewers.
Associated persons to map in private equity
An associated person is wider than payroll. These are the relationships worth organising evidence around for this sector.
- Placement agents and third-party fundraising intermediaries
- Portfolio company management teams performing services for the fund
- Financial advisers and deal intermediaries on transactions
- Fund administrators and back-office service providers
- Co-investors and deal-sharing partners
Fraud scenarios and the evidence to capture
Illustrative scenarios where a listed base fraud offence could be committed to benefit the organisation. They are prompts for human review, not findings.
A placement agent misrepresents fund performance or terms to investors to benefit the GP by accelerating fundraising.
Evidence focus: Placement agent agreements, investor materials review records, DDQ responses, and FCA disclosure compliance evidence.
A portfolio company management team overstates EBITDA or understates liabilities in investor reporting to support a higher valuation that benefits the fund.
Evidence focus: Valuation review records, audited accounts, management accounts sign-off, and any independent verification steps.
An intermediary receives undisclosed fees from a portfolio company on behalf of the fund, creating a conflict and benefit not disclosed to investors.
Evidence focus: Fee disclosure records, conflict-of-interest register, approval trails, and investor disclosure documentation.
What the defence file should prioritise
- Placement agent and fundraising intermediary due-diligence records
- Portfolio company reporting review and sign-off trails
- Valuation process documentation with named reviewer decisions
- Fee, conflict-of-interest disclosure, and investor communication approval records
Private Equity ECCTA fraud questions
- Are portfolio company management teams associated persons?
- Portfolio company management performing services for or on behalf of the fund — for example managing assets, generating returns, or acting on fund instructions — may be associated persons. This is a legal assessment; the platform helps structure the evidence for qualified review.
- Does ECCTA apply to closed-end funds with no UK investors?
- Whether a particular fund arrangement has a UK nexus depends on the fund structure, GP location, and the nature of the associated persons' activities. This is a legal determination; the platform helps organise the scope-screening evidence for that assessment.
- Can the platform confirm we are in scope?
- No. Scope depends on the size test and the facts of your group. DefenceFile structures the scope-screening inputs and reserves the conclusion for qualified reviewers.
Related sectors
- Financial servicesBanks, asset managers, and fintechs face ECCTA failure-to-prevent-fraud risk via introducers and agents. Organise scope, risks, and a defence file.
- Professional servicesConsultancies, accountants, and advisory firms carry ECCTA fraud exposure through associates and referral partners. Organise scope, risks, and a defence file.
- Legal servicesLaw firms face ECCTA failure-to-prevent-fraud exposure via referrers and agents. Organise scope, risks, and a reviewable defence file.
Keep going
- Failure to prevent fraud: the offence explainedThe statutory offence, the size test, and what a defence file is for.
- Reasonable proceduresHow the six principles map to evidence you can organise and review.
- Failure to prevent fraud: straight answersDirect, sourced answers on scope, penalties, the deadline, and the defence.
- Pricing and pilotsHow a structured pilot review of your evidence works.
DefenceFile organises evidence for legal and compliance review. It does not provide legal advice, create privilege, certify scope, certify reasonable procedures, or guarantee that a statutory defence will succeed.