Firms improve sanctions controls, gaps remain
The Financial Conduct Authority warns that while financial firms have improved their sanctions controls, significant gaps persist. This comes as £37 billion worth of assets were frozen in the UK last year.
Progress in freezing assets
Financial firms have made tangible progress in bolstering their defenses against sanctions breaches, with a notable £37 billion worth of assets frozen in the UK as of last year.
This achievement reflects the proactive efforts of the Financial Conduct Authority (FCA), which has assessed the sanctions systems and controls of over 150 firms across various financial services sectors since February 2022.
The review identified repeated examples of firms exhibiting strong controls and successfully identifying potential sanctions breaches before they could occur.
The FCA continues to support the Office of Financial Sanctions Implementation (OFSI) and the Office of Trade Sanctions Implementation (OTSI) by ensuring that supervised firms maintain adequate sanctions systems and robust controls, contributing to the overall integrity of the financial system.
Persistent weaknesses and new challenges
Despite the observed progress, the FCA's latest review highlights several persistent weaknesses that firms must address.
The most common root causes of reported sanctions breaches include deficiencies in due diligence processes, alert management, and the effectiveness of transaction and name screening systems.
Furthermore, challenges remain in the precise management of frozen assets and ensuring full compliance with specific licences.
Firms also face particular difficulties in detecting and preventing breaches of trade sanctions, which involve a broader range of controls related to bans on the export and import of goods, technologies, and services, compared to financial sanctions.
While reports continue to primarily concern the Russian sanctions regime, the FCA notes an increasing number of reports related to Libya, Iran, and North Korea, signaling an evolving threat landscape.
The sanctions tightrope
While firms have demonstrably strengthened their defenses against financial crime, the persistent gaps underscore the dynamic and complex nature of sanctions compliance.
The distinction between financial and trade sanctions, coupled with evolving geopolitical risks, places a continuous and heavy burden on regulated entities.
This ongoing cat-and-mouse game demands perpetual investment in systems and expertise, making true 'completion' an elusive goal.