FCA publishes results of UK financial services firms’ sanctions systems assessment

The FCA’s assessment covered five key areas: governance and oversight, skills and resources, screening capabilities, customer due-diligence and know-your-customer (KYC) procedures and reporting breaches.

The assessment found several areas of good practice across financial services firms. It noted a ‘proactive approach to identity sanctions exposure to Russia’, whereby firms had conducted risk exposure assessments and scenario planning in advance of the Russian invasion of Ukraine. ‘We consider this horizon scanning and scenario planning to be an important process for firms to adopt as part of their risk management procedures,’ the FCA commented.

It also found that many firms were able to demonstrate appropriate screening tools for the level of risk to which they were individually exposed. Firms were also able to show the controls they had in place to measure the effectiveness of their sanctions systems thresholds and parameters.

As a result of the assessment, the FCA has made several suggestions for areas that financial services firms need to improve upon. It noted that some global firms’ sanctions policies were not aligned with the UK sanctions regime, leading to a lack of awareness on UK sanctions law, regulations, and guidance and increasing the risk of non-compliance.

It also identified an over-reliance on third-party sanctions screening tools and inadequate calibration of tools, as well as a lack of adequate skills and resources to deal with reporting. ‘Many firms had significant backlogs in the assessment, escalation, and reporting of alerts from the screening of names and payments’, observed the FCA. ‘This affected firms’ ability to promptly identify and report exposures.’

In terms of customer due-diligence and KYC procedures, the FCA expressed a concern about the ‘low quality’ of assessments leading to an increased risk of firms not being able to identify sanctioned individuals.

It has now encouraged firms to continue to evaluate their approach to identifying and assessing the sanctions risks they are exposed to, actively strengthen measures to prevent breaches and adapt to evolving sanctions and changing risk exposures.

Sources

• FCA
• Steptoe