2021 Sanctions Thematic Review

Summary

This is a thematic review report published by the Guernsey Financial Services Commission summarising the findings of its 2021 review into how banks, fiduciaries and fund administrators monitor and comply with targeted financial sanctions. It is an advisory document setting out findings, examples of good practice, and areas for improvement rather than new binding rules, but it references existing Chapter 12 Handbook obligations that all firms subject to AML/CFT supervision must meet.

• Underlying assets screening: Only 56% of fiduciary and investment firms surveyed screen underlying assets; firms should assess whether underlying assets, including subsidiaries, could be subject to sanctions and document mitigation.
• Automated screening effectiveness: Some firms focused on system efficiency over effectiveness, risking missed sanctions matches through over tuning.
• Understanding and mitigating risk: Few firms could explain how customers, products and services were exposed to sanctions risk; firms should assess and document this exposure and mitigation.
• Policies and procedures: Some firms' screening policies lacked basic detail on methods used, responsibilities, and thresholds/settings; these should be documented.
• Understanding of systems: Some firms had limited understanding of how customer data interacts with screening systems; firms should ensure systems are understood and correctly configured.
• Outsourced functions: Heavy reliance on Group or external vendors sometimes left unclear local accountability; firms should obtain evidence outsourced systems work effectively and document responsibility.
• Compliance monitoring: Some compliance testing was not sufficiently robust; testing should confirm alerts are generated appropriately and correct customer data is screened.

The Commission notes that firms found to have material deficiencies during the review are subject to risk mitigation programmes it has imposed, and states it will consider how all firms incorporate the report's findings into their policies and procedures as part of ongoing supervision. The report emphasises that all firms across sectors, including general insurance writers exposed to proliferation financing or terrorist financing risk, are subject to the same sanctions screening obligations even though not all sectors were directly reviewed.

Key obligations

• Firms must maintain appropriate and effective policies, procedures and controls to identify in a timely manner whether a prospective or existing customer, beneficial owner, key principal or other connected party is subject to a UN, UK or States of Guernsey Policy and Resources Committee sanction.
• Firms must have a system and/or control to detect and block transactions connected with persons, entities and arrangements designated under the Bailiwick's sanctions regime.
• Firms must maintain compliance monitoring arrangements that assess the effectiveness of their sanctions controls and compliance with the Bailiwick's sanctions regime.
• Firms identified with material deficiencies during the thematic review must comply with the risk mitigation programmes imposed on them by the Commission, including re screening customers, beneficial owners and third parties where required.
• Firms should assess whether underlying assets, including subsidiaries, could be subject to sanctions and document appropriate mitigation.
• Firms should document the fundamentals of their sanctions screening process, including thresholds and settings used and responsibilities assigned.
• Firms relying on outsourced or Group screening systems should obtain sufficient evidence that those systems work effectively and maintain documentation of responsibility within the Group.

Applies to

banks, fiduciaries, fund administrators, investment firms, insurance firms (including marine general insurance and kidnap and ransom insurance writers), non-regulated financial services businesses (NRFSB), prescribed businesses