The UK Financial Conduct Authority (“FCA”) has recently published proposed changes to its Financial Crime Guide (available here). The Financial Crime Guide sets out the FCA’s expectations for how financial institutions should approach compliance across a range of financial crime areas, and includes examples of what the FCA considers to be good and bad practice. The guide makes clear that firms “should apply the guidance in a risk-based, proportionate way taking into account such factors as the nature, size and complexity of the firm”.
In particular, the FCA has proposed various changes to sanctions-related elements of the Financial Crime Guide, building on the FCA’s publication earlier this year of its guidance on firms’ sanctions compliance systems and controls (as summarised in our previous blog post here). The FCA is consulting on the proposed changes, with the consultation ending on 24 December 2026.
Key proposed changes from a sanctions perspective include the following:
- Increased focus on trade sanctions compliance
- Various different sections of the guide now make reference to how financial institutions should manage trade sanctions risks, alongside financial sanctions risks.
- Examples of trade sanctions-focused good practice include the following:
- “Where a firm is involved in facilitating international trade, it has mapped its clients’ products and associated industries against sanctioned goods and industries.”
- “A firm proactively seeks to identify exposure to trade sanctions within its open book and correspondent relationships, in addition to its trade finance operations.”
- “Where appropriate, a firm takes steps to verify the end-use and end-user in trade transactions to avoid risk of sanctions circumvention, including an assessment of information provided in trade-related documents”.
- “Where exposure to trade sanctions risk is identified, the firm considers screening for restricted goods and services, high-risk ports and countries, and sanctioned vessels as well as designated persons.”
- Emphasis on cryptoasset and blockchain-related requirements
- The proposed updates to the guidance emphasise that cryptoasset firms are required to comply with sanctions.
- The FCA also provides guidance on effective use of blockchain analytics for sanctions compliance purposes.
- Examples of good practice in these areas include the following:
- “Where blockchain analytics solutions are deployed, the firm ensures that compliance teams understand how these capabilities can be best used to identify transactions linked to higher risk wallet addresses, including those included on the UK Sanctions List.”
- “A firm engaging in cryptoasset activities uses blockchain analytics to complement existing risk-based anti-money laundering policies and procedures to allow early and timely identification and flag any connections to anonymity-enhancing technology such as privacy layers, tumblers or mixers.”
- “A firm engaging in cryptoasset activities utilises on and offchain controls to screen customer activities and reacts to possible sanctions evasion, including where exposure or additional information is identified post-transaction, and uses post-transaction controls to inform future risk assessments”.
- For cryptoasset firms, bad practice can include where the firm “deploys a rigid rule concerning the number of ‘hops’ or relevant transfers it scrutinises when undertaking due diligence on its customers and/or relevant transactions, which does not account for risk-appropriate measures”.
- Explanation of roles of OFSI, OTSI, HMRC and the FCA as regards sanctions compliance
- Expanded guidance around effective sanctions systems and controls
- The FCA’s guidance emphasises that sanctions compliance needs to be embedded within the wider financial crime framework.
- Further guidance is provided by the FCA on sanctions risks assessments, the provision of effective sanctions training, and the need for firms to have clear sanctions policies in place.
- Effective risk assessment questions can include whether a firm has “assessed its exposure to intermediary countries in sanctions circumvention schemes”, or “considered its exposure to sanctions measures beyond asset freezes, such as sectoral sanctions or trade sanctions”.
- The guidance also includes examples of good and poor practice in relation to Management Information (MI) regarding sanctions issues.
- The prior sections of the guidance on sanctions screening have now been restructured and supplemented, with proposed standalone sections covering (i) list management and data feeds, (ii) calibration, configuration and assurance testing, and (iii) alert management and resourcing.
- The guidance also makes clear that firms’ sanctions compliance teams should be sufficiently resourced “to avoid backlogs in sanctions screening and [to ensure that they] are able to react at pace.”
- The FCA’s guidance includes various examples of broader good practice and bad practice relating to onboarding and monitoring of customer relationships. Firms should integrate sanctions-related assessments into their customer due diligence (CDD) and enhanced due diligence (EDD). Good practice can include where a firm “uses legal and contractual assurances for compliance (such as sanctions clauses and attestations) in addition to robust customer due diligence processes”. The guidance also notes that specific sanctions events should “trigger updates to a firm’s CDD/EDD”.
- Significant expansion of section on evasion detection and investigation
- Good practice can include where a firm “has proactive, thematic reviews into customers with exposure to high-risk sanction circumvention countries and sectors”. The guidance also notes that, following the imposition of significant sanctions regime changes, good practice will include where “the firm proactively investigates customers with exposure before and after the event in order to detect potential evasion.”
- Express guidance around screening for transferable securities restrictions
- The proposed changes to the guidance expressly address compliance with the UK’s restrictions on dealings in certain transferable securities and money market instruments.
In addition to sanctions-specific elements, the proposed updates to the guidance also cover other financial crime areas, including fraud, proliferation financing (including proposed updates relevant to export controls for dual-use and military goods), and money laundering and terrorist financing.
