FCA warns firms to strengthen sanctions compliance controls

The Financial Conduct Authority has warned financial institutions that sanctions compliance remains an area of significant supervisory focus, as geopolitical tensions and enforcement activity continue to increase.

The regulator said firms must ensure they have effective systems and controls in place to identify sanctions risks, monitor transactions and prevent prohibited activity. The warning follows a series of reviews examining how firms manage sanctions obligations across different sectors of financial services.

The FCA highlighted weaknesses in governance, screening processes and escalation procedures at some firms, reinforcing expectations that sanctions compliance should be integrated into wider risk management frameworks.

For banks involved in trade finance, commodity finance and correspondent banking, sanctions controls have become increasingly important as international restrictions grow more complex. Compliance failures can expose institutions to financial penalties, reputational damage and operational disruption.

Financial institutions are facing greater scrutiny of customer due diligence, ownership structures and cross-border payment flows. This is particularly relevant for transactions involving higher-risk jurisdictions or sectors exposed to export controls and geopolitical restrictions.

The FCA’s comments also underline the growing operational burden associated with sanctions compliance. Firms are being required to invest more heavily in screening technology, monitoring systems and specialist compliance resources.

As sanctions regimes continue to evolve, regulators are increasingly expecting firms to demonstrate not only compliance with existing rules but also the ability to respond quickly to new restrictions as they emerge.

The message from supervisors is clear: sanctions risk management is no longer a specialist compliance issue but a core component of financial risk management.