In a rapidly evolving financial landscape, staying compliant with sanction regulations is more critical—and more challenging—than ever. Our recent webinar, “Staying on Top of the Sanctioned Securities Challenge,” brought together industry experts Becki Laporte of Datos Insights, SIX Group’s Jeffery Bellemore, and FinScan’s Steve Marshall to discuss the complexities of sanctioned securities and offer insights into managing these challenges. Here are the key takeaways from the discussion.
What are the drivers behind securities screening?
The need for screening securities is driven by the stringent nature of sanction regulations. Becki LaPorte emphasized that engaging with sanctioned entities, even unintentionally, can lead to severe penalties. The complexity arises as sanctioned securities may not always be straightforward, often embedded within structured products or associated with entities indirectly.
Steve Marshall highlighted the importance of understanding the concept of facilitation. Financial institutions must ensure they are not facilitating transactions for sanctioned entities, which requires a deep dive into the organizational structures and relationships that might expose them to sanctioned activities.
Who needs to be aware of securities risks?
Everyone involved in the trade process needs to be aware of sanctioned securities. This includes not just those directly trading but also clearing brokers, custodians, and fund managers. Steve Marshall pointed out that awareness must extend to understanding the risk exposure within portfolios and the importance of ongoing screening.
Why is risk assessment data important?
Risk assessment is foundational to managing sanctioned securities. Knowing your customer (KYC) and understanding their activities, relationships, and counterparties are essential. Steve and Becki discussed how a robust risk-based approach can serve as a mitigating factor during penalty assessments. They stressed that internal controls and the quality of data play a critical role in effective risk assessment.
What are the main securities screening challenges?
The main challenge in securities screening lies in the multidimensional nature of the task. Unlike the one-dimensional task of name-screening, securities screening involves looking at the specific characteristics of securities, such as issue dates and the entities involved. Steve Marshall noted the complexity added by rules like the OFAC 50% rule, which requires a thorough understanding of ownership structures.
Leveraging technology and data
Jeffrey Bellemare emphasized the need for accurate and timely data, such as ISIN numbers and other identifiers, to effectively screen securities. He pointed out that relying solely on name and ticker screening is insufficient due to potential mismatches. Advanced technology is essential to manage and cross-reference the vast amounts of data required for accurate screening.
The role of compliance teams
Becki LaPorte and Steve Marshall shared that compliance teams must integrate closely with business operations to ensure a comprehensive understanding of the requirements and data necessary for compliance. This integration helps in maintaining up-to-date and accurate internal controls and in mitigating risks effectively.
The growing complexity of sanctions
The discussion also touched on the increasing complexity of sanctions, particularly with the emergence of new sanction programs. Jeff Bellemare illustrated this with the example of the 2022 Russian sanctions program, which necessitated monitoring securities across multiple global jurisdictions. This underscores the need for continuous vigilance and updating of data and screening processes.
Practical steps for compliance teams
To get ahead of the sanctioned securities challenge, compliance teams should:
Enhance awareness: Regularly update and educate themselves and their organizations about the latest sanction regulations and risks.
Leverage technology: Use advanced screening technologies and comprehensive data sources to manage the complexities of securities screening.
Integrate with business operations: Foster close collaboration between compliance and business teams to ensure alignment and effective risk management.
Turning awareness into action
Our recent expert roundtable provided valuable insights into the complexities and best practices for managing sanctioned securities. By leveraging advanced technologies, maintaining high-quality data, and fostering a risk-based approach, financial institutions can better navigate the challenges of securities screening and sanction compliance.
Watch the full securities screening discussion on demand.
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