With increased regulation, more complex sanctions regimes globally and an increase in enforcement activity ($US 14 billion fines by UK and US enforcement against financial services companies since 2010), it is imperative that firms have an effective sanctions compliance programme in place.
Firms which are subject to FCA regulations have a statutory and regulatory requirement to comply with the UK sanctions regime.
The UK sanctions regime was developed alongside other legislation, such as anti-money laundering. There is no single Act of Parliament that sets out the regime. It reflects the requirements of various UN Security Council resolutions and is implemented by way of EU Regulations and UK Statutory Instruments. There are also EU investment ban, financial and trade sanctions regimes that apply in the UK. Responsibility for the UK sanctions regime lies with three government departments:
- HM Treasury
- The Foreign and Commonwealth Office (“FCO”), and
- The UK Department for Business Innovation and Skills (“BIS”).
Sanctions can take many different forms, with an overarching goal of creating restrictive or coercive measures. They may involve the freezing of funds, the withdrawal of financial services, bans and restrictions on trade or travel and suspension from international organisations, where people or organisations or countries are no longer participants in dealing with those organisations worldwide. Generally, the most relevant types of sanctions are financial sanctions and trade. In other words, sanctions restrict the countries, organisations and individuals with whom you can do business.
Where a firm is active outside the UK, it may need to comply with the requirements of the sanction regimes in the other jurisdictions in which it trades. Some jurisdictions’ requirements may also apply without a firm having an actual presence in that jurisdiction. Firms will need to understand which sanctions regimes impact on which parts of their business and ensure they correctly comply with applicable sanctions, while not incorrectly applying regimes of other jurisdictions to UK business.
The key to avoiding breaching the UK sanctions regime is not about doing everything. A risk assessment will highlight where your firm is most exposed or at risk and allow you to focus on implementing effective processes and controls in those places.
In our recent blog series on how RegTech is revolutionising compliance processes, we observe that in the best firms, effective compliance management is really born out of following clear processes. Every firm should have sanctions policies that support and inform the day to day operational processes. Firms should ensure that staff and third parties are aware of their obligations through effective training and communication.
It is interesting to note that approximately 100 changes were made to the UK Sanctions database last year. The REG Network automates the manually intensive sanctions checking process globally on a daily basis and provides alerts when changes occur.
Fundamentally the automation of the sanction checking process will save firms time, effort and money whilst providing continuous accuracy and removing a time-consuming and quite monotonous process. RegTech truly helps firms satisfy statutory and regulatory requirement in a better way.