Earlier this week we published a blog reporting on the FCA’s statement regarding the new financial sanctions that the UK has imposed on Russia. As the FCA identified in its statement, the imposition of sanctions creates a regulatory risk for firms and their staff (particularly senior managers) in the sense that, where the regulator identifies failings in financial crime systems and controls, it can impose restrictions, investigate and/or take enforcement action.
The FCA’s statement directs firms to a number of useful sources of information, including the good and poor practices set out in FCG 7 of the Financial Crime Guide. The examples of good practice include having an individual of sufficient authority responsible for overseeing the firm’s adherence to the sanctions regime and having appropriate escalation of actual target matches and breaches of UK sanctions, with timely notifications. The FCA’s general financial sanctions page also sets out certain facts about financial sanctions for firms to consider. These include that standard anti-money laundering checks do not screen clients against the HM Treasury list (the HMT List) and that financial sanctions apply to all transactions without financial limit. In addition, the FCA highlights that, as most listed individuals and entities are aware that they are on the HMT List, the issue of ‘tipping off’ (as set out in the Proceeds of Crime Act 2002) should not generally arise.
From our experience, when events are moving fast and firms need to react in real time, as is currently the case, it is particularly important to have in place, and adhere to, robust governance arrangements. Some key considerations include:
- Information flows: Keep up to date with regulators. This includes by paying close attention to the websites of the FCA, OFSI and HM Treasury. Make sure any management information reflects developments and is sufficient in content and regularity.
- Responsibility: Ensure clear allocation of responsibility within the firm for overseeing adherence to the sanctions regime and that there is a supportive governance framework in place involving all relevant stakeholders and representatives from relevant key functions.
- KYC and monitoring systems: Ensure these are sufficient to capture indirect linkages as well as the obvious client risks.
- Communication: The extent to which client risk warrants reporting will need to be understood and clearly articulated to relevant staff. Maintaining appropriate external communications will also be key.
- Reporting: Ensure the firm has arrangements in place to enable prompt internal and external reporting including to OFSI and the FCA where required and that matters can be escalated to enable efficient decision-making.
- Audit trail: Ensure that discussions, decisions made, including rationale, and steps taken are recorded appropriately.
Given the potential serious consequences for firms and their senior managers of any sanctions related issues, in case of any doubt about obligations, firms should consider seeking advice from relevant internal functions or external advisors where appropriate.