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Sanctions Act examinations: room for improvement, but sector shows strong commitment to compliance

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Published: 31 May 2023

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DNB has conducted a series of examinations to assess financial institutions’ compliance with sanctions regulations and, more specifically, whether their compliance operations are fit for purpose. We are happy to share the results of these investigations.

Since 25 February 2022, several sanctions have been imposed on Russia and Belarus in response to the war in Ukraine. This prompted De Nederlandsche Bank (DNB) to launch two thematic examinations into the financial sector’s compliance with sanctions regulations. Our findings indicate that most of the Dutch financial institutions we examined are largely compliant with the Sanctions Act (Sanctiewet). However, we also note that there is still room for improvement, and that new implementation challenges have emerged in the sector following last year’s introduction of several major sanctions packages. In addition to minor areas for improvement, a number of shortcomings were identified as well. DNB has taken measures to remedy these.

Commitment to compliance

As part of our first examination, we investigated institutions from different sectors (banks, payment institutions, insurers, pension funds, trust offices and crypto brokers) to assess whether their business operations are set up in such a way that the assets and economic resources of sanctioned parties can be frozen in a timely manner, or that the delivery of services, funds and economic resources to sanctioned parties can be stopped. We also looked at whether sanctions list hits are reported to DNB without delay. Operational effectiveness in this area varies by sector and by institution. Overall, it is clear that most institutions devoted significant time and energy to sanctions compliance last year. Nevertheless, the new sanctions packages have created major challenges for the financial sector, raising implementation questions that will have to be addressed, at least in part, in Europe.

The effectiveness and efficiency of sanctions screening systems

In our second examination, we tested the effectiveness and efficiency of sanctions screening systems at 31 banks and payment institutions. This involved testing the transaction screening systems as well as the customer screening systems.  In this examination an external party had compiled lists of names screened by the institutions’ own systems.  Two-thirds of the institutions performed satisfactorily, which means that they are capable of detecting most sanctioned names and transactions. These institutions can further optimise their systems based on the feedback provided. We expect the remaining third to take remediation actions, as too many sanctioned names and transactions currently go undetected by their systems. We have asked these institutions to take a critical look at their sanctions screening systems based on the results of the examination.

General observations and findings

In the annex to this news release, we share some general observations and findings from the above-mentioned examinations for the benefit of all institutions operating in the relevant sectors. Institutions that were directly involved in the examinations have received, or will soon receive, individual feedback.

Results of DNB’s examinations on compliance with sanctions regulations

Download Results of DNB’s examinations on compliance with sanctions regulations