The Financial Conduct Authority (FCA) has released a comprehensive report outlining key findings from their recent assessments of sanctions systems and controls in financial services firms. The report not only identifies examples of good practice but also highlights areas where improvements are needed to enhance compliance with sanctions regulations.
Key Findings
- Governance and Oversight: Firms that proactively planned for possible sanctions before February 2022 were better prepared to implement UK sanctions swiftly. Monitoring the effectiveness of sanctions implementation through management information (MI) and ensuring sanctions reporting aligns with the UK regime are crucial. Some firms still struggle to provide senior management with sufficient information about their sanctions exposure.
- Skills and Resources: Adequate resourcing of sanctions teams is essential to prevent backlogs in handling sanctions alerts and to respond quickly to sanctions risks. Some firms lack the necessary resources, leading to compliance risks.
- Screening Capabilities: Sanctions screening tools must be properly calibrated to meet UK regime requirements. While some firms demonstrated well-calibrated tools, others relied on third-party providers without effective oversight.
- Customer Due Diligence (CDD) and Know Your Customer (KYC): Effective CDD and KYC procedures are essential for sanctions compliance. Instances of low-quality CDD and KYC assessments, along with backlogs, increase the risk of firms failing to identify sanctioned individuals or entities.
- Reporting Breaches to the FCA: Timely and accurate reporting of potential sanctions breaches to the FCA is crucial. The report highlighted inconsistencies in reporting across firms, with some delays in reporting breaches undermining the FCA's ability to address system and control issues promptly.
Expectations for Firms
The FCA expects firms to consider these findings and take appropriate actions to enhance their sanctions systems and controls. They recommend firms to refer to their Financial Crime Guide, SYSC 6.3 of their Handbook, Sanctions webpages, and guidance by the Joint Money Laundering Steering Group (JMLSG). Additionally, firms are encouraged to engage with the FCA in testing their sanctions systems and controls and promptly report significant deficiencies.
Why the Focus on Sanctions Systems and Controls
The report underlines the importance of financial services firms having robust systems and controls to prevent financial sanctions evasion, particularly in light of the increased sanctions imposed by the UK Government and international partners since Russia's invasion of Ukraine. The FCA collaborates closely with the Office of Financial Sanctions Implementation (OFSI) to ensure compliance and supervision of regulated firms.
Who Does This Apply To
This report is relevant to all registered UK firms within the FCA's regulatory and supervisory scope. It specifically targets Money Laundering Reporting Officers (MLROs), Nominated Officers, and industry practitioners in financial crime compliance roles. Professional Body Supervisors (PBSs) supervised by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) are also included.
Actions Taken by the FCA
In addition to firm assessments, the FCA has communicated its expectations to firms and professional bodies, engaged with industry through various channels, and worked with partner agencies to enhance collaboration and information exchange. Their ongoing actions include publishing statements, liaising with the government on sanctions design, developing intelligence, and launching a dedicated sanctions reporting tool.
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has played a crucial role in promoting sanctions compliance within the legal and accountancy sectors, ensuring PBSs take appropriate steps to raise awareness and compliance.
Next Steps and Compliance
Firms are encouraged to evaluate their approach to identifying and assessing sanctions risks, strengthen measures to prevent sanctions breaches, and adapt to evolving sanctions requirements. Reading the FCA's guidance and engaging with them to test sanctions systems and controls are crucial for firms. PBSs are also encouraged to review the findings and apply recommendations in their supervisory work. The FCA remains committed to refining its processes, enhancing its approach, and collaborating with industry and partner agencies to ensure effective sanctions compliance.
Sanction Scanner, an AML solutions provider, offers comprehensive tools and services to assist financial services firms in addressing the key findings and expectations outlined by the FCA regarding sanctions systems and controls. Sanction Scanner provides calibrated sanctions screening tools, improves the quality of CDD and KYC assessments, streamlines reporting and alert management, optimizes resource utilization, and offers continuous monitoring to keep firms up-to-date with evolving sanctions requirements. Their risk assessment and scenario planning tools aid in proactive sanctions planning, while training and education resources enhance awareness and knowledge. Sanction Scanner's solutions are designed for easy integration and customization, helping financial firms enhance sanctions compliance, mitigate risks, and meet FCA expectations effectively.
