In an increasingly complex financial landscape, implementing effective sanctions controls are essential in the fight against financial crime. The Financial Conduct Authority (FCA) recently conducted a comprehensive assessment of over 90 firms spanning various sectors, from retail banking to emoney and payments, focusing on their sanctions controls. The objective of the survey was to ensure these firms possess adequate and effective systems and controls to address sanctions risks and can respond swiftly to the ever-evolving UK sanctions regimes.
During its assessment, the FCA identified examples of both good practice and areas for improvement under 5 key themes: Governance and oversight; Skills and resources; Screening capabilities; Customer Due Diligence (CDD) and Know Your Customer (KYC) procedures; Reporting breaches to the FCA.
Governance and Oversight
The FCA has found that firms that had proactively planned for potential sanctions changes before February 2022 were better equipped to implement UK sanctions swiftly. Effective monitoring and review mechanisms are crucial, alongside ensuring that sanctions reporting aligns with the UK regime. Some firms lag in providing senior management with adequate information regarding their sanctions exposure, relying on global sanctions policies that don’t sync with the UK’s. The FCA expects improvements to be made in these cases.
Skills and Resources
Adequate resourcing of sanctions teams is imperative to avoid backlogs in handling sanctions alerts and to facilitate swift responses to sanctions risks. The FCA found that some firms still grapple with insufficient resources, increasing the risk of non-compliance with sanctions obligations.
Sanctions screening tools should be accurately calibrated and must encompass UK regime requirements. While certain firms demonstrated well-calibrated screening tools, the FCA’s assessment concluded that others relied on poorly calibrated or tailored tools, often from third-party providers with ineffective oversight. Tools tailored to the UK sanctions regime’s nuances and calibrated to a firm’s unique risks are more effective.
Customer Due Diligence (CDD) and Know Your Customer (KYC) Procedures
Effective CDD and KYC procedures are fundamental for sanctions compliance. Among the firms assessed, instances of subpar CDD and KYC assessments and backlogs persist, heightening the risk of failing to identify sanctioned individuals or entities, especially those concealed within complex corporate structures.
Reporting breaches to the FCA
Timely and accurate reporting of potential sanctions breaches or relevant sanctions information is crucial. The FCA found inconsistencies in the timeliness of reporting across firms. To uphold the integrity of sanctions controls, firms must make timely and accurate reports to regulatory bodies.
The FCA’s expectations of firms
In light of these revelations, the FCA has set forth a clear set of expectations for firms:
- Consider findings and take action: Firms are expected to carefully consider the assessment findings, reflecting on their approach to identifying and assessing sanctions risks. Where necessary, prompt and effective action should be taken to address identified shortcomings.
- Embrace regulatory guidance: Staying informed is pivotal. Firms are encouraged to delve into essential resources, including the FCA’s Financial Crime Guide, with particular attention to Chapter 7, and SYSC 6.3 of the Handbook. Additionally, the FCA’s Sanctions webpages and guidance from the Joint Money Laundering Steering Group (JMLSG) offer valuable insights to fortify sanctions controls.
- Engage in collaborative testing: Firms are urged to engage actively with the FCA in the testing of their sanctions systems and controls. This collaborative approach ensures that any significant deficiencies identified during the testing process are promptly reported to the regulatory authority. Such transparency is integral to maintaining the integrity of sanctions controls.
How 123signed can help
Our 123signed technology takes a multi-layered approach to financial crime compliance, ensuring your regulatory sanction controls and monitoring requirements are covered in a quick and easy process. Incorporating KYC and KYB processes, and an efficient transaction monitoring system, 123signed allows you to identify fraudulent activity in real-time. As an automated tool which aggregates multiple solutions, 123signed provides everything you need in one cost effective application, including governance enhancements, comprehensive screening tools, and streamlined reporting mechanisms.
Get in touch today to find out more.