FCA Announces New Reporting Tool for Sanctions Breaches and Poor Sanctions Controls
In a notice published on 17 May 2022 ("Notice"), the FCA announced the release of a new reporting tool, akin to a whistleblower hotline, this is designed to facilitate the voluntary reporting of sanctions evasion issues or weaknesses in sanctions controls by firms or persons listed on the FCA's registers, or companies with UK listed securities.
This new tool aligns with the concerted approach taken by the UK to strengthen its sanctions and enforcement regime in response to Russia's invasion of Ukraine. As set out in a recent joint statement on sanctions and the cryptoasset sector, the UK regulators have announced their broad intention to work with the government and law enforcement, to share intelligence and prevent sanctions evasion. As the FCA explains in the Notice, it will carefully consider any information it receives and use it to "help build up a picture of conduct risk or inform how we develop policy and work with partners to assist the UK enforcement of sanctions".
The tool allows reports to be submitted anonymously, including by (i) individuals in relation to a current or previous employer; (ii) an authorised firm in relation to its own issues, and by (iii) a firm or professional with information about the conduct of another firm or individual. The question is whether it will encourage a series of potentially disgruntled current or former employees making reports.
What should be reported?
The new reporting tool aims to collate information relating not only to suspected or actual sanctions breaches, but also to any methods that are being used to breach UK sanctions and "any suggestion that firms have poor sanctions controls".
This last category is broadly worded but could trigger reports in relation to perceived weaknesses in the internal sanctions policies and procedures of regulated firms, the adequacy of training on sanctions policies and procedures etc.
How to report?
The Notice provides instructions on the ways in which the FCA can be notified of sanctions evasions issues or weaknesses in sanctions controls:
- For reporting on current or previous employers, or to speak to the FCA confidentially, the FCA recommends speaking to its Whistleblowing team.
- In the case of an authorised firm reporting issues at the firm and not requiring anonymity, the FCA recommends reporting in the same way as other FCA reporting (see the Sup 15 website for further details).
- For firms and professionals who wish to share information relating to actual or potential sanctions evasions by other firms or individuals, the FCA has established a new platform available on their website.
Voluntary reporting to the FCA through the above channels does not satisfy any duties arising out of the Proceeds of Crime Act 2002 or the Sanctions and Anti-Money Laundering Act 2018. In a joint statement with OFSI and the Bank of England, the FCA urged that where transactions give rise to concerns about sanctions evasion or money laundering firms should also consider their obligations to report to the UK Financial Intelligence Unit (UKFIU) at the National Crime Agency under the Proceeds of Crime Act 2002.
Additionally, entities subject to another regulatory regime, or members of a professional body who have information about money laundering or terrorist financing, should also contact the other regulator or professional body supervisor in addition to informing the FCA.
What happens next and what should you do?
Once a report is made (whether anonymously or not), the FCA will review it to consider the need for any further action. While not obliged to, if anyone making a report provides their contact details the FCA might contact them to seek additional information. The results of the report, however, will remain confidential.
As mentioned above, even if no further action is required, the FCA will use the information provided to build a picture of conduct risk and inform its policy approach to sanctions monitoring and enforcement.
Given the FCA's focus on adequate sanctions controls and sanctions evasion, this presents a renewed area of risk to regulated firms, who may consider re-emphasising internal reporting and escalation channels lest employees feel they have no option but to report to the regulator what they consider to be a gap, triggering an external investigation in areas which might otherwise not have warranted it. Given the rapid and continuing evolution of the UK's sanctions regime, continuous monitoring of the applicable regulations to ensure a clear understanding of the applicable regulatory requirements is also key.