Sanctions have increasingly become strategic weapons to tackle global threats and political shifts head-on. The UK government has called sanctions a “critical instrument of the UK’s foreign, national and security policy” in a “more dangerous and uncertain world”. The EU has described its use of sanctions as a “preventive and non-punitive instrument that allows the EU to respond swiftly to political challenges and developments”.
While geopolitical developments and sanctions go hand-in-hand, it is the private sector – and in particular financial institutions – that are tasked with implementing them. Financial institutions must be ready to respond and implement at a moment’s notice when new sanctions designations are announced – from screening their customer base against new designations to ensuring that they have controls in place to detect and disrupt sanctions evasion.
With often leaner compliance teams and more innovative financial products, emerging financial service firms have in particular felt the sanctions compliance pressure in recent years. For many Fintechs, sanctions have gone from being a simple screening check done at onboarding to the need for ongoing due diligence, screening and monitoring to detect sanctions evasion attempts and stay on top of regulatory developments. Being able to maintain efficient sanctions screening controls – no matter the number of designations – is key for enabling Fintechs to scale and instill confidence with banking partners who Fintechs often rely on to service their customers.
Regulators increasingly expect firms to adapt their screening systems to the sanctions risks they face and the geopolitical environment they operate within. In their 2023 sanctions systems and controls thematic review of firms, the FCA noted that many firms have “poorly calibrated or tailored screening tools” that were not calibrated to the risks faced by a firm. OFAC, in its ‘Framework for OFAC Compliance Commitments’, similarly noted that firms should implement controls that are calibrated to the firm’s risk profile, while the European Banking Authority as recently as November 2024, called on firms to adapt screening systems to the size, nature and complexity of a firm and its sanctions risk exposure.
This paper examines the delicate relationship between geopolitics and the sanctions screening controls deployed by financial institutions and identifies strategies Fintechs can use to stay ahead of sanctions and adapt their screening systems to screen more efficiently in response to the geopolitical crises of tomorrow and in line with sanctions risks.
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