UK FCA publishes findings on sanctions systems and controls

The UK Financial Conduct Authority (FCA) has set out guidance in a new report on compliance with the UK sanctions regimes. The FCA acknowledges that the rules on sanctions have become more complicated since February 2022.

The FCA expects firms to understand when they could be engaging in activities which are at risk of causing sanctions breaches, for example:

• Transferring funds out of accounts shortly after an individual or entity is sanctioned.
• Accessing financial services or economic resources through complex ownership chains, relatives, or close associates.
• Using third parties, intermediaries, or correspondent banks to obscure connections to a sanctioned person.
• Routing funds through cryptoasset or e-money wallets to conceal links to designated persons.
• Conducting cash withdrawals for onward movement to high-risk jurisdictions.
• Mis-declaring the nature or end use of goods in trade transactions.
• Providing falsified or incomplete trade documentation.

Key themes in breaches identified by the FCA were failures of due diligence, alert management, and transaction and name screening. The FCA also noted failings in relation to the management of frozen assets and compliance with specific and general licences. To mitigate sanctions-related risks, firms should understand the risks which may impact their business and have systems and controls applicable to customers and the services provided. Firms should review their systems and controls, and in particular keep policies up to date and in line with regulatory developments and monitor and test the effectiveness of their systems and controls, including related governance and reporting processes.

The FCA will continue to monitor firms alongside the Office of Financial Sanctions Implementation (OFSI) and the Office of Trade Sanctions Implementation (PTSI), with these weaknesses in mind, to drive improvements and reduced sanctions risk across the industry.

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