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FCA Issues New Guidance on Sanctions Compliance for UK Firms

In response to the extensive sanctions imposed by the UK Government and international partners following Russia's invasion of Ukraine, the Financial Conduct Authority (FCA), the British regulatory body, has released fresh advice for firms regarding compliance with the country's sanctions regime.

FCA Issues New Guidance on Sanctions Compliance for UK Firms

The FCA emphasized the unprecedented nature of the sanctions' size, scale, and complexity, which has spurred intensified scrutiny of firms' sanctions systems and controls. As part of this effort, the FCA has undertaken a substantial program to assess over 90 firms spanning various sectors.

This evaluation involved proactive assessments of firms' controls, utilizing a new analytics-based tool, as well as intelligence and reporting mechanisms. The results highlighted examples of both exemplary practices and areas requiring enhancement, categorized into five key themes:

  1. Governance and Oversight: Firms that had taken proactive measures for potential sanctions compliance before February 2022 were found to be better equipped to swiftly implement UK sanctions. Effective monitoring and assessment of sanctions' effectiveness through management information (MI) are crucial. Some firms have yet to demonstrate that they provide senior management with adequate information about their exposure to sanctions or rely on global sanctions policies misaligned with the UK sanctions regime, necessitating improvements.

  2. Skills and Resources: Adequate resourcing of sanctions teams is vital to avoid backlogs in addressing sanctions alerts and to enable swift responses to sanctions risks. Some firms still lack the necessary resources, resulting in the heightened risk of non-compliance with sanctions obligations, particularly for those facing significant backlogs.

  3. Screening Capabilities: Sanctions screening tools must be properly calibrated and meet UK regulatory requirements. While some firms exhibited well-calibrated screening tools, others had poorly calibrated or generic tools. Additionally, some firms relied heavily on third-party providers without effective oversight. To enhance effectiveness, these screening tools need to align with the UK sanctions regime and address specific risks faced by individual firms.

  4. Customer Due Diligence (CDD) and Know Your Customer (KYC) Procedures: Effective CDD and KYC procedures are essential for sanctions compliance. Instances of subpar CDD and KYC assessments and backlogs persist, increasing the risk of firms failing to identify sanctioned individuals or entities. This may result from a failure to recognize connected parties or sanctioned corporate structures.

  5. Reporting Breaches: Firms are expected to promptly and accurately report potential sanctions breaches to the FCA. The assessment revealed inconsistencies in the timeliness of reporting across firms.

In response to these findings, the FCA has laid out its expectations for firms:

  • Firms should assess their approach to identifying and evaluating sanctions risks and take appropriate action.

  • Firms are encouraged to consult the Financial Crime Guide (particularly Chapter 7), SYSC 6.3 of the Handbook, the FCA's Sanctions webpages, and guidance from the Joint Money Laundering Steering Group (JMLSG).

  • Firms should engage with the FCA in testing their sanctions systems and controls and report any significant deficiencies discovered in these processes.

These guidelines underline the FCA's commitment to ensuring that UK firms adhere to sanctions regulations effectively, especially in the face of evolving and complex geopolitical circumstances. Compliance with these guidelines will be crucial in safeguarding both firms and the broader financial system from potential risks associated with sanctions violations.



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