UK: FCA to stress-test FI compliance readiness

The UK’s Financial Conduct Authority (‘FCA’), a key government agency overseeing the regulated financial services industry, is to roll out a new tool for analysing the sanctions compliance readiness of the firms which it regulates.

So said its chief executive, Nikhil Rathi, in a response to a Treasury Select Committee on Inquiry on ‘Russia: effective economic sanctions’.

In a 4 July letter to the committee’s chair, Rathi explained that while it is the job of the Office of Financial Sanctions Implementation (‘OFSI’) to investigate and prosecute breaches of the sanctions regime, the role of the FCA is to ‘help ensure that firms that we regulate have appropriate systems and controls to comply with the sanctions regime established by the government.’

The letter said that while firms had ‘generally managed the impact of sanctions well on their business’, and that ‘the combination of transitional licences (by OFSI) and advance “self-sanctioning” (by firms) has made this a smoother process than might have been the case,’ nonetheless, ‘a small number of firms operating in Russian markets have failed as a direct result of sanctions or the self-sanctioning of them by their service providers.’

The letter said that in recent assessments of the sector, the FCA had identified several areas of potential concern, including around the ‘effectiveness of firms’ customer sanctions screening processes at onboarding and on an ongoing basis, with some weaknesses also found in firms’ approach to real time payment screening.’

It said that while in the past the FCA had used a ‘face to face and document-led’ approach to ‘determine how effective firms’ systems are, given that such a method is ‘resource-intensive and difficult to do at scale’, it is rolling out a new analytics-based tool using ‘test data which we generate,’ and as part of which ‘We send firms a list of approximately 100,000 entities which tests if their systems can identify sanctioned entities effectively.’

https://committees.parliament.uk/publications/23023/documents/168751/default/