By Collette Allen, client services director at SmartSearch
The UK government has imposed a tranche of sanctions on Russia in response to the situation in Ukraine.
The new sanctions are aimed at encouraging Russia to cease actions that destabilise, undermine or threaten the territorial integrity, sovereignty or independence of Ukraine.
All firms regulated by the Financial Conduct Authority (FCA) must have appropriate policies in place to make sure they comply with sanctions legislation. This includes carrying out regular and appropriate checks of sanctions lists.
Amongst those impacted are Independent Financial Advisers (IFAs) and each and every adviser will need to check their clients to avoid professional damage.
Reputational risks
Those that do work with clients on sanctions lists are taking a big reputational and financial risk, as the Financial Conduct Authority has shown it is not afraid to fine those who do not comply with the rules.
The FCA recently responded to the introduction of sanctions by stating: “We expect firms to have established systems and controls to counter the risk that they might be used to further financial crime and this includes compliance with financial sanctions obligations. Where the FCA identifies failings in financial crime systems and controls we can impose restrictions and/or take enforcement action.”
To avoid fines and reputational damage, IFAs need to be reviewing their due diligence processes. On-boarding new clients can be a time-consuming task, but the risks of working with someone on a sanctions list has never been higher.
To ascertain whether a client is on a sanctions list, the first step is to accurately identify them. Using an electronic verification system avoids the time-consuming task of reviewing various forms of ID. It also circumvents the potential of being deceived by a fake document.
These forgeries are becoming more and more sophisticated and most would take an expert to spot. Therefore, switching to electronic verification not only saves time, but also dramatically reduces the chances of being deceived.
Once the client has been identified they then need to be checked against sanctions lists.
Sanctions breach
Automated monitoring is the only effective solution for IFAs wanting to make sure they are undertaking suitably detailed monitoring and not risking inadvertently facilitating a breach of sanctions.
For example, the automated monitoring service provided by the SmartSearch platform enables subscribers to perform screenings to see if their clients are on sanctions or politically exposed persons (PEP) lists. These initial searches are then augmented by on-going monitoring that triggers alerts if a person or entity becomes the subject of new sanctions.
Monitoring can be performed daily, weekly or monthly depending on the preferences of clients, and is supported by industry leading suppressions and automated enhanced due diligence. This means significantly fewer false positive matches, and ensures that SmartSearch subscribers only have to investigate alerts that matter, rather than wasting time and resources on ones that turn out to be unrelated to their clients.
Ongoing automated monitoring is likely to become increasingly important to businesses, given the likelihood of the introduction of further sanctions.
IFAs looking for a way to immediately check if their existing customers appear on PEP and sanctions lists can do this using batch upload monitoring. Businesses which already have their customers on the SmartSearch platform will have received updated warning alerts for the new sanctions via the automated ongoing monitoring and will continue to receive these as the lists are updated.
The technology exists to conduct effective and comprehensive due diligence so IFAs can avoid working with those on sanctions lists. IFAs need to adopt technology so they can avoid being part of the problem, and a good start would be an automated AML solution.
