Long reads

Sanctions will play an increasingly prominent role

Paige McNamee

Paige McNamee

Senior Reporter, Finextra

This is an excerpt from The Future of Risk Management and Compliance 2023 report.

During 2022, several events significantly contributed to an increased level of global instability, led in no small part by Russia’s invasion of Ukraine, a readjustment to life post-Covid-19, and inflationary spirals affecting major global economies, spurring renewed attention toward effective risk management by regulators around the world.

This context set the scene for what has already been a highly eventful 2023 across financial regulation. Areas from anti-money laundering and counter terrorist financing to credit and operational risk, cybersecurity and data privacy, to digital payments and crypto, are all due to experience intense regulatory evolution over the next 12 months, making new demands of financial institutions and their risk management strategy.

We spoke with a handful of experts from the legal landscape, tech world, and financial services, to gain a better understanding of the regulatory trends they predict will be the most impactful on the industry, and drive the need for wellintegrated risk management platforms.

Russia’s invasion of Ukraine caused a huge surge of sanctions being placed on the country’s individuals and organisations during 2022, and as 2023 progresses this trend appears only to be increasing. Governments are highly motivated to continue pressuring Russia, and financial institutions have a large role to play in enforcing these measures.

In February 2023, the EU announced it would hit Moscow with its tenth package of sanctions, which will set out sanctions against an additional four Russian banks, including the country’s largest private bank, Alfa-Bank.

The Atlantic Council counts 11,802 total sanctions enforced by Western nations against Russia, with 2,636 (22.3%) of these being entities and 9,025 (76.5%) individuals. As the Statista visual below illustrates, a significant portion of sanctions imposed on Russia came into being after February 2022, when the country invaded Ukraine.

Diving into his view of the key regulatory pressures financial institutions must manage in 2023, Alastair Lauder, managing consultant in fincrime at Valcon, flags sanctions as a key focus area for firms in the UK specifically, given the increasing focus on ultimate beneficial owners (UBOs), supported by Companies House reform.

Additionally, regulation focused on more of the European Political and Security Committee (PSC) registers is becoming publicly available, “which allows vendors to ingest and enrich their entity database meaning more UBOs would be easily identified during the onboarding stage via publicly available information. However, the lack of robust verification of parties on these registers means that organisations must not take information at face value and perform their own risk assessment processes commensurate to the level of risk presented,” Lauder states.

Lauder adds that an additional challenge presented by the fast-moving evolution of existing sanctions regimes is the need for real-time risk reporting, which requires an ever increasing number of data points and a sophisticated risk management platform to address.

Luke Firmin, managing consultant in fincrime, Valcon, argues that fraud remains the biggest risk within the UK market. As fraud should be seen as the top financial crime threat, “the more companies can do to share UBO and fraud information on integrated risk platforms the better the chance we have as a UK financial crime platform to reduce the risk overall.”

Firmin continues that the UK House of Lords’ ‘Fighting Fraud: Breaking the Chain’ committee report in November 2022 highlighted a number of steps required to "break the fraud train", including the establishment of a fraud sub-committee, the prioritisation of fraud by law enforcement, the addition of a "failure to prevent fraud" corporate criminal offence and revisions to the payments infrastructure to accommodate counter fraud measures. “It also dealt with the approval of the Online Safety Bill will all see a flurry of regulatory related activity in 2023,” Firmin explains.

Comments: (1)

Geraint Rogers
Geraint Rogers - G3Consultancy - Wotton-Under-Edge, Gloucestershire, United Kingdom 02 May, 2023, 15:56Be the first to give this comment the thumbs up 0 likes

Paige, this is a good snippet to get the conversation going. Once underway, I am really interested in how data availability and privacy controls are being considered by global authorities and whether there is truly a joined up approach between individual protections and the greater good. I say this lightly given the societal cost of Financial Crime/Fraud and the risk of data management removing key insights.