Financial crime is a problem in the UK and something that the government takes very seriously. It’s the job of the Financial Conduct Authority (FCA) to regulate the financial services sector and that includes policing sanction searching and imposing penalties on those businesses that don’t comply. It is a criminal offence not to comply with a financial sanctions order that is currently in place and the penalties can be severe.
Why is sanctions searching necessary?
The government imposes financial sanctions orders to prevent transactions being carried out with the subject of the order. That could be an individual, another business or it could even be a government. There are many different reasons why this type of order may be imposed –what is important for an insurance broker is to ensure that there is no trade being carried out with the subject of a financial sanctions order that is in breach of the terms of that order.
What does sanction searching involve?
The FCA has said that it expects there to be in place “systems and controls to mitigate the risk of financial crime to include those that enable you to meet financial sanctions obligations.” The regulator tends to take a narrow view of any business that fails to meet sanction searching obligations simply as a result of a lack of information or infrastructure. It requires that specific processes and procedures are put in place to ensure that sanction searching can take place for every client or existing client and has specifically said that these may need to be separate from money laundering checks that may exist.
The UK Consolidated Financial Sanctions List
The process of sanction searching means checking Her Majesties Treasury database – the UK Consolidated Financial Sanctions List - , which details those who are the target of a financial sanctions order. The list is updated regularly and can either be checked manually or using a facility such as the British Insurance Brokers’ Association automated financial sanctions checking facility. Checks need to be carried out in two ways:
1. Against new clients
2. Against existing clients after every update of the list to ensure that those you’re already working with haven’t since become the target of an order
In addition to checking clients against the list, there is an obligation on UK businesses to ensure that the terms of any order in place are being complied with. If there is a financial sanctions order in place this can make giving any advice at all very difficult. Doing business with an individual or entity that is the subject of a financial sanctions order requires authorisation from the Office of Financial Sanctions Implementation or the appropriate licence.
Failure to comply
Insurance brokers must be proactive in ensuring sanction searching takes place – ignorance of the existence of an order is no justification for breaking its terms. Those businesses that don’t comply could face criminal penalties, including fines and even time in prison.
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