Banking for the future: it’s time to anticipate sanctions

By Oliver Bodmer, Senior Product Manager, SIX

Olivier Bodmer

We all have a fascination and a desire to see the future. Some days, especially when the markets are most volatile, it’s good to suspend belief for a moment and think how great it would be if the Back to the future The Delorean time machine could transport us to 2050 to see what assets we should buy, to find out if the energy transition is a success or not, or even to find out about the sanctions.

However, most of the time, looking to the future is just wishful thinking. When it comes to sanctions, the banks probably find themselves wishing the Delorean wasn’t fictitious. Unfortunately, financial institutions live in the real world, as opposed to Hollywood. The real world reality is that they need good information and a strong compliance program that combines the data points they buy from a vendor, with their internal compliance policy and risk appetite. .

This is all the more important today given the volume of sanctioned securities, companies and individuals affected) by geopolitical issues that challenge regulatory teams every time a series of new measures are introduced. As a result, for banks, compliance has become an even more complicated and resource-intensive business in recent months. Many of these newly imposed sanctions even allow for liquidation periods, either through “blanket licenses” or regulations allowing for liquidation periods until divestment.

The challenge is that maintaining compliance with current sanctions is becoming an increasingly complex task. (Trying to predict which stocks might be hit by sanctions might seem like the kind of problem that can only be solved by a fictional time machine. But not keeping tabs on the implications of unpredictable geopolitical events due A lack of compliance team bandwidth will not serve as an excuse when a bank is caught off guard in formulating its response to future restrictions.

For compliance departments, enabling them to get a head start on quantifying their risk levels by flagging investments that may be affected is of paramount importance. But it’s not as simple as that. For compliance officers already dealing with risk mitigation complexities, wrestling with potentially sanctioned individuals adds an additional layer of complications. Companies should ensure that they review their exposure to the securities affected by the broader set of names in order to be prepared for possible future actions. The presence of the list means that, in order to avoid financial consequences and reputational damage, banks must be aware of and prepared to comply with it well in advance of further sanctions that may be imposed. This has now become the public expectation, and that means more work for compliance teams.

To address any new expectations around potentially sanctioned individuals, banks need to expand and strengthen the procedures they use for compliance with their current sanctions. Already, diligent financial institutions have protected their operations by ensuring their databases and processes were compliant with regulations long before the recent sanctions, ensuring they were aware of the securities linked to appointees by governments.

Ensuring access to a complete database of each potentially affected financial instrument is essential for sanctions compliance. The universe of securities whose beneficial ownership teams must now track has been expanded. In many ways, today’s environment calls for more automation.

Fortunately, financial institutions have the resources to meet this challenge and turn it into an opportunity. By efficiently sourcing data and ensuring they have streamlined and efficient procedures to track the changing status of affected instruments, proactive banks can get a head start. In doing so, while they may not possess the ability to look into the future, at least their sources will be available to act on what they see.

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