global insurance management

Financial Sanctions


Oct 10 2011

Financial Sanctions

Relevance:             All firms.

Action required:     Review the following guidance and consider how best to comply.

This should be viewed under the wider heading of Financial Crime.

Financial services firms must not conduct business with any individual or firm listed in HM Treasury’s financial sanctions list.

If a firm does not meet its obligations regarding financial sanctions, the government can seek criminal penalties against the firm and in certain circumstances against the management of the firm. It is essential that a firm’s senior management is aware of and understands the financial sanctions regime and takes appropriate steps to ensure that the firm is meeting its obligations.

There are many misconceptions.  We are told that many small firms are oblivious to their financial sanction screening obligations; indeed many believe that such screening is just not applicable to them as they don’t hold client money or don’t make payments or only deal in products they believe are low risk for financial crime.

Helpfully, the Treasury has issued some general licences, two of which may assist insurance firms, intermediaries and brokers.  One licence allows firms to issue an insurance policy to a designated person but then it must be reported without delay; the other allows insurers to make certain goods and services temporarily available to a designated person in connection with a valid claim.

So, how do you know if a client or even a prospective client is on the list? 

By checking it!  The list can be found at http://www.hm-treasury.gov.uk/fin_sanctions_index.htm

Searching the list may produce a “hit” – a name match where further investigation of the individual’s details is then required to establish if there is a target match.  If so, you must contact the Asset Freezing Unit at HM Treasury for instruction on how to proceed.

In addition, the FSA considers it good practice for firms to check against the HM Treasury list:

  • all new customers
  • existing clients;
  • any changes to client details; and using
  • any updates to the HM Treasury list.

And it is not restricted to individuals and firms – the check must also include the Directors, Partners etc of those firms and organisations you do business with.

There are no rules, requirements or timescales laid down for firms to follow except that the FSA expects firms to have sufficient systems and controls in place to prevent them from being used for financial crime.

As we have said before for other issues, a firm should have a risk-based approach to financial sanction screening, taking into account their business profile and customer base.  Equally, we understand that this matter is being raised more frequently in compliance and financial audits. 

Bearing in mind that there may be around 50 individuals (name variations could show over 400 entries) and 12 organisations on the list that are UK based, there is likely to be only a small chance of getting a “hit”.  However, we would not want to see any firms take unnecessary risks if a simple solution is available.

There are a number of methods that can be used to check clients against the list:

  • manually against the Excel spreadsheet; or
  • electronically against the Excel spreadsheet, using the firm’s own IT programs or business software; or
  • utilising a specific checking service, usually web-based and for a price.

The choice will probably depend on the number of clients to be checked and the associated cost of the various options.  There also needs to be evidence available of the check having been carried out.

Firms must also ensure that they have written procedures which include the requirement to check the financial sanctions list and that training is provided to relevant staff on the meaning of the financial sanctions regime and its application to the firm.

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