‍Managing Sanctions Compliance in Payments: A Regulatory Overview

Viviane Giglio


February 14, 2024

Governments worldwide have increased their regulatory scrutiny and enforcement actions, resulting in a growing emphasis on sanctions compliance. In this blog, we highlight the challenges payments firms face, and the most recent regulatory announcements to be aware of - collected using our Horizon Scanning tool.

Challenging and Complex: Sanctions Compliance on the Rise

Large financial institutions have implemented sophisticated sanctions compliance programs that include measures such as risk assessments, customer due diligence, transaction monitoring, etc., to identify and prevent prohibited activities. Despite these efforts, there are still significant challenges and gaps in the current sanctions compliance system. One of the major challenges is the lack of consistency and coordination among different countries and regulatory bodies. This can lead to confusion and difficulty in interpreting and enforcing sanctions rules. Furthermore, there are concerns regarding the effectiveness of sanctions in achieving their intended goals, as some countries may find ways to circumvent the restrictions.

Another challenge is the increasing complexity of the global business environment, which makes it difficult for companies to identify and track all of their business relationships and transactions. In the instant world, where payments are expected to be completed within seconds, and sanctions screening is a must, compliance professionals may find it challenging to strike a balance between business revenue and risk mitigation. Differentiating between individuals based on their identifiers can be challenging due to the occurrence of false positives.

What is Horizon Scanning showing?

Since the conflict between Ukraine and Russia in February 2022, our Horizon Scanning tool has detected over 200 regulatory announcements worldwide. This underscores the increasing determination of regulators to ensure compliance with sanctions. Here are some highlights:

1) New UK Iran Sanctions: The Iran (Sanctions) Regulations 2023 came into effect on December 14, 2023. These sanctions respond to the Iranian regime's increasing threats against peace and security in the Middle East and against UK citizens.

2) EBA Consultation Paper: The European Banking Authority (EBA) recently published a consultation paper providing guidelines on internal policies, procedures, and controls to ensure businesses comply with the restrictive measures outlined in Regulation (EU) 2023/1113. The paper highlights the importance of effective policies and procedures, tailored training, and the role of management and senior staff. Additionally, it recommends that businesses choose a screening system based on specific criteria. Furthermore, if there are reasonable grounds to suspect that the previous screening system was inadequate or ineffective, the business should perform a retroactive screening of their customer database to ensure compliance.

3) EU's Criminalisation of Sanction Violations: The European Union (EU) has taken a significant step by agreeing to criminalise the violation of its sanctions. This move aims to strengthen the enforcement of EU sanctions and hold accountable those who attempt to circumvent or violate them.

4) UK's Emphasis on AML and Sanctions Compliance: Payment firms in the UK are called upon to conduct regular reviews to assess their compliance with anti-money laundering (AML) obligations and sanctions requirements. Addressing any weaknesses identified during these reviews promptly is crucial to maintaining compliance.

5) Strengthening of UK's Sanctions Regimes: The Office of Financial Sanctions Implementation (OFSI) in the UK continues to amend legislation to enhance the country's sanctions regimes. This includes adding new individuals to the consolidated list of asset freeze targets to strengthen compliance efforts.

As compliance executives and MLROs, it is essential to remain vigilant and proactive in adapting your compliance strategies to these evolving sanctions regimes - and crucial to ensure that your organisation is well-informed and prepared to meet the compliance obligations set by regulators.

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