Firms Strengthen Sanctions Controls but Gaps Persist, Warns FCA

The Financial Conduct Authority (FCA) has acknowledged measurable progress in how regulated firms prevent sanctions breaches, while making clear that the work is far from finished. With £37bn of assets frozen in the UK as of last year, the trajectory is encouraging — but the residual weaknesses the regulator identifies are precisely the ones that tend to surface during enforcement.

The FCA supervises firms in the financial services sector on behalf of the Office of Financial Sanctions Implementation (OFSI) and the Office of Trade Sanctions Implementation (OTSI), which administer financial and trade sanctions respectively. Its supervisory role centres on whether firms maintain adequate sanctions systems and controls. Since February 2022, the regulator has proactively assessed more than 150 firms across a spread of subsectors.

The latest review records repeated instances of firms operating strong controls and intercepting potential breaches before they crystallised. Less reassuringly, the recurring root causes of reported breaches cluster around familiar pressure points: due diligence shortcomings, alert management, transaction and name screening, and the handling of frozen assets and licence compliance. None of this will surprise anyone who has remediated a screening programme — these are the controls that decay quietly between assessments and fail under volume.

Trade sanctions remain the harder problem. The FCA found firms struggle to detect and prevent specific trade breaches, and that the control set deployed against import and export restrictions on goods, technologies and services is broader and less standardised than the comparatively mature financial sanctions toolkit. Firms carrying both exposures should treat trade sanctions as the area most likely to be under-resourced relative to its risk.

Reporting still concentrates on the Russian regime, though the FCA notes filings touching Libya and, increasingly, Iran and North Korea — a reminder that screening logic and watchlist coverage calibrated to one regime will not necessarily catch another.

On 28 May the FCA signed a Memorandum of Understanding (MoU) with OTSI, formalising cooperation and intelligence-sharing between the two bodies; a parallel MoU with OFSI is already in place. The practical implication is straightforward: information about firm conduct will now move more freely between financial and trade sanctions supervisors, and firms should assume that a weakness visible to one is visible to both.

Read the press release here.