Introduction
In a significant move to enhance the efficacy of financial sanctions enforcement, the UK Office of Financial Sanctions Implementation (OFSI) and the Financial Conduct Authority (FCA) announced a groundbreaking Memorandum of Understanding (MOU) on November 21, 2023. This MOU replaces its predecessor dating back to April 2019 and outlines a collaborative framework between the two regulatory bodies to combat and prevent financial and maritime services sanctions breaches.
Key Provisions of the MOU
Under the MOU, the FCA and OFSI have agreed on a comprehensive information-sharing mechanism to strengthen their collective efforts. The key provisions include:
Sharing of Information: The FCA will provide information regarding suspected breaches of financial or maritime services sanctions to OFSI, while OFSI will reciprocate by sharing information about potential weaknesses in regulated companies' systems and controls for preventing sanctions breaches.
Joint Investigations: Both agencies commit to sharing information about suspected sanctions breaches when there is a belief that joint investigations would enhance enforcement. This cooperation aims to streamline efforts and improve the overall effectiveness of enforcing sanctions.
Categories of Shared Information: The MOU includes a non-exhaustive list of categories of information that may be shared, encompassing asset freeze notifications, designated persons reports, and other relevant data.
Intention to Share Information Regularly: The MOU states the intention of both agencies to share information regularly, either proactively or upon request. The frequency and mechanism for sharing information will be agreed upon by the parties.
The MOU specifies the purposes for which the shared information can be used by each agency:
The FCA can use the obtained information for functions related to authorization, supervision, market oversight of FCA-supervised firms, and for enforcement purposes, including investigations and taking enforcement actions.
OFSI can utilize the information for civil and criminal investigations, as well as to facilitate compliance with sanctions legislation or for any other purpose agreed upon by both parties.
Regulatory Expectations and Focus on Compliance
While the MOU marks a significant step towards more collaborative enforcement, regulated firms are reminded to adhere to their existing reporting obligations to both the FCA and OFSI independently. The MOU does not absolve firms from their responsibilities to report breaches to both authorities.
The FCA has recently increased its focus on financial sanctions compliance, particularly in response to geopolitical events such as Russia's invasion of Ukraine. A review of over 90 firms across various sectors revealed both commendable practices and areas needing improvement:
Good Practices:
Proactive identification of sanctions exposure to Russia.
Continual development of effective screening systems to identify sanctions evasion.
Well-calibrated screening tools aligned with the firm's sanctions risks.
Areas for Improvement:
Senior management oversight of sanctions risk.
Alignment of global sanctions policies with the UK sanctions regime.
Reduction of over-reliance on third-party screening tools.
Improved contingency planning.
Adequate internal expertise and resourcing for timely screening.
Properly calibrated sanctions screening tools.
Enhanced quality of Customer Due Diligence and Know Your Customer assessments.
Conclusion
The collaboration between OFSI and the FCA, as outlined in the MOU, represents a pivotal moment in strengthening the UK's financial sanctions enforcement framework. Firms are encouraged to stay vigilant, maintaining robust compliance measures and addressing areas identified for improvement. As regulatory scrutiny intensifies, proactive adherence to best practices will be crucial for financial institutions navigating the complex landscape of sanctions compliance.
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