Opinion: Sanctions compliance steps up a gear
David Hamilton and Stacy Keen write about changes in the sanctions compliance regime.
The risk to businesses of sanctions enforcement has become more acute after the Financial Conduct Authority (FCA) urged whistleblowers to come forward.
The FCA’s new reporting platform for sanctions breaches “expressly encouraged” employees to report their concerns on a “confidential and anonymous basis”.
It seems certain that sanctions compliance will become an increasingly prevalent ground for regulatory enforcement action – particularly in cases where firms have failed to make appropriate notifications and the FCA has received intelligence through the platform from whistleblowers.
The regulator’s new reporting platform allows authorised firms and their employees to voluntarily report breaches of sanctions as well as weaknesses in their internal sanctions policies and procedures. Reports can be submitted anonymously and are kept confidential by the FCA.
The FCA indicated that whistleblowers could share any suggestions that a firm has poor sanctions controls, as well as suspected or actual breaches of the sanctions regime and any methods used by firms or individuals to breach the sanctions regime.
Financial crime compliance has always been a priority area for the FCA, and authorised firms are already required to report incidents to the regulator under the principles, rules, and guidance in the FCA Handbook. By introducing a dedicated sanctions reporting portal – even one that operates on a voluntary basis – the FCA is clearly encouraging firms to up their game in assessing their controls, identifying potential compliance issues, and engaging with the regulator.
With the rapidly evolving sanctions landscape, largely fuelled by measures against Russia, the regulator has placed particular importance on authorised firms implementing and maintaining financial crime systems that can adapt to fast-paced legislative amendments.
Following the launch of a new webpage setting out its expectations for firms in light of the UK’s sanctions on Russia, the FCA has also written to a range of financial institutions to remind them of their sanctions reporting obligations to the Office of Financial Sanctions Implementation (OFSI). It was stressed that recent changes to the Russian sanctions regulations enabled the government to act more swiftly in designating persons, and firms’ systems would need to be able to keep up.
Relevant firms have a statutory obligation to inform the OFSI as soon as practicable if they know, or have reasonable cause to suspect, that a person has breached financial sanctions – or that a person is a financial sanctions target. The reporting obligation is triggered when that knowledge or suspicion came to the relevant firm in the course of carrying out its business.
Those involved in dealings that breach financial sanctions can, more generally, benefit from reporting them to the OFSI. Breaches that are voluntary disclosed to the watchdog promptly, completely and with subsequent cooperation, can reduce any civil penalty subsequently imposed by up to 50%.
Firms that are subject to compulsory reporting obligations to the OFSI are also required to flag any money laundering suspicions they have to the National Crime Agency (NCA). Reporting such suspicions to the OFSI alone does not release a business from its responsibility to alert the NCA, since sanctions breaches and money laundering are covered by overlapping but ultimately separate regimes.