In a word, yes.
In the ever-evolving world of sanctions regulation, the message from the enforcers is becoming increasingly clear: Organisations need a well-designed, risk-based sanctions compliance programme.
While the Office of Financial Sanctions Implementation (OFSI) doesn’t mandate a specific compliance framework, its recent enforcement notices strongly underscore the need for firms to develop programmes that reflect their unique risk exposure. Similarly, the US Office of Foreign Assets Control (OFAC) “strongly encourages” entities under US jurisdiction to build and maintain a risk-based compliance programme, citing it as central to effective sanctions risk management.
This isn’t just a tick box exercise. It’s about future-proofing your firm in a world that is becoming more and more complex.
Ok. But what does a risk-based approach really mean?
At its core, a risk-based approach means understanding where your business is exposed to potential sanctions breaches and tailoring your compliance efforts accordingly. OFAC’s compliance framework actually breaks this down into five essential components:
- Management commitment
- Risk assessment
- Internal controls
- Testing and auditing
- Training
These will sound familiar to firms already subject to anti-money laundering (AML) obligations.There’s of course significant overlap between AML and sanctions compliance. It makes sense to leverage existing AML best practices to strengthen your sanctions controls.
The risk assessment process
A robust risk assessment is the foundation of any effective sanctions compliance programme. Firms should examine their exposure across:
- Products and services
- Geographic reach
- Customer base
- Supply chain relationships
From there, define your risk appetite. Are there certain jurisdictions, sectors, or business models you simply won’t engage with? Documenting these boundaries helps set guardrails for decision-making and allows compliance teams to focus scrutiny where it matters most.
This is particularly critical in sectors like legal and finance, where the client or the transaction structure may be the risk, even if the service itself seems routine.
Smart resourcing
It’s not just about identifying risk. It’s about having the tools and the talent to mitigate it.
This may mean investing in automated sanctions screening software, particularly if your firm deals with high transaction volumes or cross-border trade. But tech alone won’t cut it. Know Your Customer (KYC) procedures must be thorough and regularly updated. Sanctions often apply to individuals or entities indirectly through ownership or control structures, so understanding Ultimate Beneficial Ownership (UBO) is critical.
Legal persons and opaque structures, like nominee shareholders or offshore trusts, can obscure control by sanctioned individuals and make it really tricky to identify UBOs. Effective due diligence must be resourced, skilled and empowered to spot the red flags.
A defensive strategy
Sanctions risk, like AML compliance, requires an acknowledgement of “lines of defence”. Start with your day-to-day business units that identify and manage risk at the source. Next line is the dedicated compliance function that sets policy and provides oversight. Finally, there are the internal audits that ensure independent assurance to senior leadership.
This structure embeds accountability throughout the organisation and ensures no single point of failure.
The intangibles that matter – governance and culture
Even the most sophisticated system will crumble without strong governance and a culture of compliance. Senior leadership needs to do more than approve policies. They must champion compliance across the firm. This includes setting clear expectations, investing in training, and holding teams accountable.
As the Financial Conduct Authority (FCA) notes, management’s role in shaping a firm’s ethical backbone is crucial. When compliance is seen as part of the firm’s identity and not just a regulatory obligation, everyone becomes a stakeholder in managing risk.
Sanctions are evolving. You need to also
The sanctions landscape is shifting fast. OFSI recently reported 208 ongoing investigations and signalled an increase in enforcement action, especially concerning Russia-related sanctions. The UK’s newly created Office of Trade Sanctions Implementation (OTSI) will soon handle civil enforcement of trade sanctions, adding another layer of oversight.
Regulatory expectations are tightening, and scrutiny is increasing, and this is across all sectors, not just traditional high-risk industries.
In a world where global events can change the sanctions map overnight, the firms that thrive will be those that treat compliance as a strategic advantage.
Download our sanctions policy template.
