How UK Financial Sanctions Work

UK sanctions are made under the Sanctions and Anti-Money Laundering Act 2018, through regulations for each sanctions regime, such as Russia, Iran and counter-terrorism. Designations are published on the UK Sanctions List. Financial sanctions are implemented and enforced by the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury.

For a designated person, financial sanctions typically mean an asset freeze. It’s prohibited to:

• deal with funds or economic resources owned, held or controlled by a designated person
• make funds or economic resources available, directly or indirectly, to or for the benefit of a designated person

Some regimes also include other financial restrictions, such as limits on investment, securities or loans.

Ownership and Control

Asset freezes also apply to entities owned or controlled by a designated person, even if the entity isn’t itself named on the list. An entity is generally treated as owned or controlled where a designated person holds more than 50% of its shares or voting rights, or otherwise controls it. That makes beneficial ownership information central to sanctions compliance, and it’s one of the hardest parts to get right.

Who Has to Comply?

Everyone in the UK, and all UK nationals and UK-incorporated businesses anywhere in the world, must comply with UK financial sanctions. Regulated firms carry additional reporting obligations, and the FCA expects them to have systems and controls that counter the risk of being used to breach sanctions. Its expectations are summarised on its financial sanctions page.

What Sanctions Screening Involves

Screening systems use fuzzy matching to catch spelling variations and transliterations, which creates false positives. Firms need trained analysts to review potential matches, clear false positives with documented reasons, and escalate genuine matches quickly.

Reporting Obligations

Regulated firms, and other relevant firms, must report to OFSI as soon as practicable if they know or have reasonable cause to suspect that a person is a designated person or has committed a sanctions breach, including details of any frozen assets. Firms also report frozen assets periodically when OFSI requests. Reports to OFSI are separate from suspicious activity reports to the National Crime Agency, and in some cases both are needed.

Licences

OFSI can issue licences allowing activity that would otherwise be prohibited, for example paying certain legal fees or basic living expenses for a designated person. General licences apply to everyone who meets their conditions; specific licences are applied for case by case. Firms must check that any licensed activity stays within the licence’s terms.

Enforcement

OFSI can impose civil monetary penalties for sanctions breaches, and serious breaches can be prosecuted as criminal offences. Since 2022, OFSI can impose civil penalties on a strict liability basis, without needing to show that the person knew or suspected they were breaching sanctions. That makes robust screening and documented decision-making more important than ever. The FCA can also take action against regulated firms whose systems and controls are inadequate.

What Good Sanctions Controls Look Like

Who Owns Sanctions Compliance?

In most regulated firms, sanctions sit with the MLRO or a head of financial crime, under the Senior Manager who holds the Prescribed Responsibility for financial crime. Larger firms often have dedicated sanctions specialists and screening teams. Since 2022, demand for experienced sanctions professionals has grown sharply, particularly in banking, wealth management, payments and crypto-asset firms. See our guide to the Money Laundering Regulations for the wider framework.

Testing Your Screening

Firms should regularly test whether their screening systems actually work: that they catch designated names, common variations and transliterations, and that thresholds aren’t set so loosely that analysts are overwhelmed, or so tightly that real matches are missed. Independent testing is particularly valuable after system changes, and should be reported to the Senior Manager responsible.

Common Weaknesses

• screening only at onboarding, without prompt re-screening when lists change
• payment screening that misses key fields in payment messages
• weak ownership and control analysis
• alert backlogs, with potential matches left unreviewed
• poorly documented decisions to clear matches
• delays in reporting to OFSI

Trade Sanctions and Other Measures

Financial sanctions are only one part of the UK sanctions framework. Trade sanctions restrict the export and supply of certain goods, technology and services, and are enforced separately. Firms that finance or facilitate trade, such as banks offering trade finance, must consider trade sanctions too. Transport and immigration measures also apply under some regimes. Firms should make sure their sanctions risk assessment covers every type of measure relevant to their business.

Frequently Asked Questions

What is OFSI?

The Office of Financial Sanctions Implementation, part of HM Treasury, which implements and enforces UK financial sanctions.

Where can I find the list of sanctioned persons?

On the UK Sanctions List, published by the government.

Does the 50% rule apply in the UK?

Broadly, yes. Entities owned more than 50% or otherwise controlled by a designated person are generally subject to the same restrictions.

Do we need to report to OFSI?

Regulated and other relevant firms must report as soon as practicable if they know or suspect a person is designated or has breached sanctions, including details of frozen assets.

Is sanctions screening the MLRO’s responsibility?

Often, but not always. Many firms place it with the MLRO or a head of financial crime, under the Senior Manager responsible for financial crime.