The Financial Conduct Authority (FCA) has released its latest review of firms’ sanctions systems and controls, identifying common weaknesses across the financial services sector.
Since February 2022, the FCA has assessed the sanctions frameworks of over 150 firms, reviewing their management of both financial and trade sanctions compliance.
The review highlights the increasing complexity of UK sanctions regimes and reminds firms to regularly assess whether their sanctions controls remain effective, proportionate, and aligned with evolving risks.
1. Governance and oversight remain essential
A key theme from the FCA review is the importance of strong governance and oversight.
The FCA identified firms with outdated sanctions policies, weak oversight of third-party providers, and frameworks focused too heavily on asset freezes while overlooking wider sanctions obligations such as trade and sectoral sanctions.
Some firms relied heavily on group entities or vendors for sanctions compliance without providing sufficient local oversight or assurance.
In contrast, stronger firms maintained current governance documentation, tailored sanctions training, meaningful management information, and clear ownership of sanctions risks throughout the business.
2. Screening controls need regular testing and oversight
Weaknesses in sanctions screening and alert management were among the most frequent causes of suspected sanctions breaches identified by the FCA.
Issues included:
- Poorly calibrated screening systems
- Delays in sanctions list updates
- Weak fuzzy matching capabilities
- Gaps in ownership and control screening
- Incomplete customer data
- Weak alert handling processes
The FCA also noted cases where firms failed to identify sanctioned parties because their screening systems did not detect spelling variations, non-Latin characters, or indirect links to designated persons.
The FCA stressed that firms should not rely solely on vendors without understanding how their screening systems and configurations work.
Stronger firms conducted regular testing, calibration reviews, and governance oversight of screening controls and exclusions.
3. Trade sanctions risk is increasing
The FCA observed that many firms’ trade sanctions controls are less developed than their financial sanctions controls.
However, trade sanctions risks are increasingly relevant across the financial services sector and are not limited to traditional trade finance activities.
The FCA identified challenges involving:
- Complex ownership structures
- Intermediaries and correspondent relationships
- Maritime activity
- Restricted goods and technologies
- Ancillary financial services linked to trade activity
Some firms also did not adequately consider trade sanctions exposure in their risk assessments.
The review reinforces the need for firms to understand how sanctions risks can arise across their products, services, customers, and jurisdictions.
4. Operational weaknesses can lead to breaches
The FCA highlighted cases where firms identified potential sanctions exposure but did not respond quickly or effectively enough to prevent breaches.
Weaknesses included:
- Delays in alert resolution
- Poor escalation procedures
- Manual handling failures
- Weak operational resilience arrangements
- Inadequate quality assurance controls
In one case, a firm experienced a sanctions screening outage and lacked effective contingency plans, which led to payments queuing without screening.
The FCA’s findings show that sanctions compliance requires more than just screening tools. Firms also need effective operational processes, escalation frameworks, oversight, and resilience measures to support these controls.
5. Firms need better visibility of indirect exposure and evasion risk
The review also highlighted the growing complexity of identifying indirect sanctions exposure and sanctions evasion.
The FCA identified risks involving:
- Multilayered ownership structures
- Complex corporate groups
- Intermediaries and close associates
- Cryptoasset and e-money routing activity
- Falsified or incomplete trade documentation
In several cases, firms struggled to identify beneficial ownership, indirect control relationships, or hidden exposure to designated individuals.
The FCA also emphasised the importance of proactive monitoring, thematic reviews, staff training, and understanding sanctions evasion typologies, rather than relying solely on basic screening controls.
Staying ahead of evolving sanctions expectations
The FCA’s review shows that sanctions expectations are evolving rapidly.
The focus is shifting beyond basic sanctions screening to the overall effectiveness of firms’ governance, oversight, operational resilience, due diligence, monitoring, and control frameworks.
As sanctions regimes expand in scope and complexity, firms should ensure their systems and controls remain proportionate, effective, and aligned with their business model and risk exposure.
How Neopay can help
Neopay supports firms with sanctions and financial crime compliance by providing independent audits, framework reviews, governance assessments, risk assessments, training, and ongoing compliance support.
As regulatory expectations evolve, firms should ensure their sanctions controls remain robust, well governed, and able to identify increasingly complex sanctions risks and evasion typologies.
If you would like to discuss your sanctions controls, governance framework, risk assessments, or financial crime compliance arrangements, click here to contact Neopay.
