FCA Issues New Sanctions Compliance Guidance Amid Heightened Focus

The Financial Conduct Authority (FCA), a British regulatory authority, has released new guidance regarding adherence to the UK’s sanctions regime. This guidance is prompted by the unprecedented scale and complexity of sanctions imposed by the UK Government and international partners following Russia’s invasion of Ukraine, which has heightened the FCA’s focus on firms’ sanctions systems and controls.

The FCA has been actively assessing the systems and controls related to sanctions compliance for over 90 firms across various sectors. This assessment includes proactive evaluations of firms’ controls using a new analytics-based tool, as well as the use of specific intelligence and reporting.

The FCA’s work has identified both examples of good practice and areas for improvement under five key themes:

1. Governance and Oversight: Firms that had preplanned for potential sanctions before February 2022 were better prepared to implement UK sanctions quickly. Effective monitoring and reviewing of sanctions implementation through management information (MI) are crucial. Some firms have not demonstrated that they provide senior management with sufficient information about their exposure to sanctions or rely on global sanctions policies that do not align with the UK sanctions regimes. Improvement in these areas is expected.
2. Skills and Resources: Adequate resourcing of sanctions teams is essential to avoid backlogs in dealing with sanctions alerts and enable a swift response to sanctions risks. Some firms still lack sufficient resources to ensure effective sanctions screening, which can lead to non-compliance.
3. Screening Capabilities: Sanctions screening tools must be appropriately calibrated and meet the requirements of the UK regime. Some firms have demonstrated well-calibrated screening tools, while others rely too heavily on third-party providers without effective oversight. Screening tools should be tailored to the UK sanctions regime and the specific risks faced by each firm.
4. Customer Due Diligence (CDD) and Know Your Customer (KYC) Procedures: Effective CDD and KYC processes are critical for sanctions compliance. Instances of low-quality CDD and KYC assessments and backlogs have been identified, increasing the risk of failing to identify sanctioned individuals or entities.
5. Reporting Breaches to the FCA: Firms are expected to promptly and accurately report potential sanctions breaches or relevant sanctions information to the FCA. The timeliness of reporting such information has been inconsistent among firms.

The FCA now expects firms to:

• Consider the findings and assess their approach to identifying and assessing sanctions risks, taking appropriate action.
• Familiarize themselves with relevant FCA guidance and engage with the FCA in testing their sanctions systems and controls.
• Report any significant deficiencies identified in their processes to the FCA.

This guidance emphasizes the importance of robust sanctions compliance measures in light of the evolving global sanctions landscape. Firms are encouraged to review their practices and ensure alignment with regulatory expectations.