With direct military intervention currently off the table, the emerging alliance of nations led by the US and EU are taking unprecedented measures to increase the financial pressure on Russia following the invasion of Ukraine.
Financial institutions are being required to put in place a growing list of sanctions, targeting a range of actors from individuals to banks and state institutions.
However, announcing sanctions is one thing, ensuring that banks are putting them in place effectively is another challenge altogether. There are multiple instances where banks have failed to properly implement sanctions in the past, allowing the assets and transactions of both individuals and businesses to slip through the net.
The impact of these failings for banks themselves can sometimes emerge years after the fact, exposing institutions to significant financial and reputational costs. For example, such has been the case with Credit Suisse as recently seen.
Many banks are facing the fact that their only current response to these new sanctions is extensive manual analysis. For emerging sanctions of this variety and magnitude, however, banks will need to have systems in place that go well beyond manual processes, applying a more comprehensive approach that can deal with in some cases millions or billions of data points. Different banks will also need systems that are flexible to their specific levels and types of risk exposure.
If manual processes, spreadsheets and sample testing ever worked, they will not work today in meeting the complexities of the evolving sanctions requirements. And the sheer fact that manual processes are needed exposes the unfortunate reality that existing sanctions screening solutions are often not up to the needs of the moment.
With the field of sanctions changing at a pace not seen in years, if not decades, some key areas to look out for include:
- How fast will jurisdictions act to penalise individual banks that have not implemented the latest sanctions effectively? There are already indications that authorities are aiming to act faster than they have in the past; for instance the EU has set up a dedicated platform for whistleblowers to facilitate the reporting of possible sanctions violations.
- To what extent will the political drive to implement sanctions lead jurisdictions to address broader legislative gaps, for instance by tackling anonymous shell companies?
- How quickly will governments act to provide additional resources to key public authorities? In the UK, for example, there has long been a concern about an “enforcement gap” hindering the implementation of anti-money laundering legislation.
The current situation requires a comprehensive approach to data analysis; one that breaks through data silos and produces rapid results. The alternative is the slow trickle of risk over weeks and months, paralysing banks’ ability to operate, grow and manage risk.
In this context, people working in compliance and anti-financial crime roles are likely to become ever more critical to overall organisational decision-making.
Last but not least, if sanctions do contribute to what we hope will be a swift end to hostilities, the people working in these sometimes under-appreciated roles will also know they played their part, small or large.
To find out more about using the only regulated, independent financial crime risk benchmark to assess your institution’s sanctions exposure please contact us here.