Currently, as per the EU-UK Withdrawal Agreement, EU sanctions will continue to be applied
in the UK during the transition period until 11 p.m. on 31 December 2020. After that date, the UK will have full autonomy with respect to its own sanctions regime established by The Sanctions and Anti-Money Laundering Act 2018 (Sanctions Act)
. The Sanctions Act allows the UK to enable sanctions to continue uninterrupted, but also gives the UK government the authority to implement its own sanctions regime, which could lead to a divergence from EU sanctions.
The Foreign, Commonwealth & Development Office (FCDO) will be responsible for the UK’s international sanctions policy, including all international sanctions regimes and designations. The FCDO will work alongside the Office of Financial Sanctions Implementation (OFSI), as the authority responsible for implementing the UK’s financial sanctions on behalf of HM Treasury. The FCDO will publish all listings on the UK Sanctions List, which will be in addition to any asset freezes or other types of financial restrictions recorded on OFSI’s consolidated list.
On 6 July 2020, the UK Government enacted the UK Global Human Rights (GHR) Sanctions Regulations 2020
, which marked the first significant change to the UK’s post-Brexit sanctions regime. The purpose of the GHR is to deter and provide accountability for individuals or entities involved in serious human rights violations against an individual’s right to life; right to not be subjected to torture or cruel, inhuman, or degrading treatment or punishment; right to be free from slavery, not to be held under servitude or required to perform forced or compulsory labour. The GHR allows the UK to impose financial sanctions and travel bans on those designated under the regime. All listings under the GHR sanctions regime will be published by the FCDO on the UK Sanctions List, which provides details on those designated under regulations made under the Sanctions Act.
Furthermore, the FCDO has published statutory guidance
split into thematic and country guidance which seeks to replace the EU sanctions regime to ensure that the sanctions measures imposed continue to operate effectively after the UK leaves the EU. In addition to the FCDO guidance, OFSI has published general guidance on financial sanctions under the Sanctions Act. Although the guidance will likely have substantially the same effect as the EU sanctions regime, subsequent changes could cause it to diverge from the EU over time.
What Does This Mean for Financial Institutions?
As the UK sanctions regime will be able to deviate from the current EU sanctions regime, all obliged entities must review the regulations and guidance provided by the FCDO and OFSI to comply with the new requirements. Financial institutions should keep apprised of any changes to the UK sanctions guidance and ensure that these are reflected within their policies, procedures, and systems updates.
How Can Guidehouse Help?
Guidehouse can rapidly review changes to the UK sanctions regime and assess your financial crime framework to determine whether it is operationally effective and meets the new regulatory expectations. We can identify financial crime framework gaps and advise on optimal solutions to any weaknesses identified.
Our team has in-depth knowledge of the regulatory environment in Europe and globally, and best practices operated by financial institutions. Our relevant expertise includes:
- Financial crime framework and sanctions risk assessments and gap analyses.
- Transaction and customer due diligence reviews.
- Advising on the effectiveness and efficiency of financial crime processes and systems.
- Compliance system testing and reviews; and general and job-specific sanctions training.
Our financial crime consultants work with financial institutions of all sizes to build effective and efficient risk management and compliance frameworks to help clients protect against legal, reputational, and shareholder risks. Guidehouse experts include distinguished former prosecutors, regulators, compliance officers, and consultants, who leverage their combined experience to help clients conquer their compliance challenges.
Special thanks to Sajeev Kanagarajah for contributing to this article.