BRITISH regulator the Financial Conduct Authority has published new advice on an adhering to the country’s sanctions regime.
The authority “the unprecedented size, scale, and complexity of sanctions imposed by the UK Government and international partners since Russia’s invasion of Ukraine, has further increased our focus on firms’ sanctions systems and controls.”
The FCA said it had been engaged in a substantial programme of work assessing the systems and controls relating to sanctions compliance for over 90 firms across a range of sectors.
This has involved proactive assessments of firms’ controls, using a new analytics-based tool, as well as the use of specific intelligence and reporting.
Its work identified examples of both good practice and areas for improvement under 5 key themes:
- Governance and oversight: Firms that had taken advanced planning for possible sanctions before February 2022 were in a better position to implement UK sanctions at speed. The ability to monitor and review the effectiveness of sanctions implementation through management information (MI) is important, as is ensuring that sanctions reporting is calibrated to the UK regime. Some firms are still not able to show that they are providing senior management with sufficient information about their exposure to sanctions or are reliant on global sanctions policies which are not aligned with the UK sanctions regimes. In these cases we expect improvements to be made.
- Skills and resources: Sanctions teams need to be properly resourced to avoid backlogs in dealing with sanctions alerts and enable a quick reaction to sanctions risks. Some firms still lack adequate resources to ensure effective sanctions screening. Firms that have significant backlogs are at greater risk of non-compliance with sanctions obligations.
- Screening capabilities: Sanctions screening tools need to be adequately calibrated and include the necessary requirements under the UK regime. We found that certain firms demonstrated their sanctions screening tools were properly calibrated. However, we also saw poorly calibrated or tailored screening tools, with some firms also too reliant on third party providers with ineffective oversight over them. Screening tools, whether developed by firms or from third party providers, will be more effective if they are appropriate for the UK sanctions regime and calibrated to the risks faced by a firm.
- Customer Due Diligence (CDD) and Know Your Customer (KYC) procedures: Effective CDD and KYC are a cornerstone of effective compliance with sanctions requirements. We have continued to find instances of low quality CDD and KYC assessments and backlogs. This can increase the risk of firms not identifying sanctioned individuals. For example, by a failure to identify connected parties or corporate structures that are sanctioned.
- Reporting breaches to the FCA: We expect firms to make timely and accurate reporting to us on potential sanctions breaches. We found that the timeliness of reporting potential breaches or relevant sanctions information was inconsistent across firms.
We now expect firms to:
- Consider our findings, evaluate their approach to identifying and assessing sanctions risks, and take action where appropriate.
- Read our Financial Crime Guide (in particular Chapter 7) and SYSC 6.3 of our Handbook, our Sanctions webpages, and the guidance produced by the Joint Money Laundering Steering Group (JMLSG).
- Engage with us in our testing of firms’ sanctions systems and controls, and report to us any significant deficiencies identified in such processes.