As the UK prepares for a future outside of the EU, one of the areas financial services companies in particular have to consider is sanctions. As of 11pm on the 31st December 2020, the UK will no longer subject to EU sanctions.
It will also mark the introduction of the UK’s sanction regime, the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). There is of course a lot of uncertainty surrounding much of the post-Brexit world, but what can UK financial services organisations do to prepare for this new reality?
What will the change mean?
Things will be essentially the same, but different. As the transition period comes to an end the UK sanctions list will be introduced. It is a comprehensive list of persons, entities or ships designated under sanctions regimes that companies are restricted from dealing with.
This updated sanction list will comprise of the designations which the UK has chosen to carry over from the EU regimes, as well as those that the UK is obliged to implement under UN regimes. The Sanctions and Anti-Money Laundering Act 2018 will consist of a consolidated list of financial sanctions of those subject to asset freezes and a separate list for those subject to restrictions on financial markets and services.
So, although many of the lists will remain the same it will be crucial for companies to carry on their sanctions checks to ensure that they remain in-line with the various sanctions acts that are relevant to them.
Why is this important?
Sanctions violations are on the rise and the fines can be large. The Office of Financial Sanctions Implementation (OFSI) revealed a record number of 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982 million between April 2019 and March 2020. In the same period between 2018 and 2019 there were 99 reports related to transactions worth a total of £262 million.
The voluntary disclosures came mainly from the banking and financial sectors and on 31st March 2020 the OFSI announced it had imposed a £20.47 million fine on Standard Chartered Bank. The bank issued over 100 loans to Denizbank A.S between April 2015 and January 2018.
At this time, the Denizbank was wholly owned by Sberbank in Russia, which was under the Ukraine Sanctions regulations. The fine marked a significant shift in the OFSI’s approach, with the highest fine up till that point a comparatively meagre £140,000. Other sectors making voluntary disclosures are insurance, charity, travel and legal.