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Improving data quality and utilizing advanced technologies such as AI are increasingly becoming focus areas for banks in navigating the complexities of sanctions management.
In an era marked by heightened geopolitical tensions and enhanced regulatory scrutiny, the importance of robust sanctions management has never been more pronounced. Financial institutions worldwide are required to manage the challenges posed by evolving sanctions regimes, necessitating a proactive and comprehensive approach to managing sanctions risks. The Nordic region, with its dynamic financial sector, is no exception to these global trends. EY conducted a survey of 13 Nordic banks to identify key priorities, approach to risk assessment and processes, and challenges in managing international sanctions.
The survey highlights the significance of robust governance frameworks, but only about half of respondent banks believe themselves sufficiently staffed to appropriately handle their sanctions risk exposure. Most respondent banks have transitioned towards a separate sanctions risk assessments which can be the result of increased regulatory scrutiny and the need to better identify the banks threats and vulnerabilities as well as resource requirements in relation to sanctions.
Challenges remain in screening systems, particularly regarding high false positive rates that can affect operational efficiency. There is a growing interest in adopting AI solutions and cloud technologies, with larger banks often utilizing more varied technologies and tools such like Robotic Process Automation. Identifying sanctions circumvention, a growing phenomenon with increased sanctions coverage by the EU, has also been noted as one of the major challenges in the survey.
Diverse priorities are observed among banks, with larger banks focusing on enhancing their alert investigation processes and smaller banks prioritize improving governance and compliance culture. Post Russia’s invasion of Ukraine in 2022, banks have adjusted their sanctions frameworks including changes to risk appetite, shifts in regulatory approaches, deployment of additional resources and contingency planning, as well as enhancement of Customer Due Diligence (CDD) data.
Summary
As the sanctions landscape evolves, banks are likely to adopt more robust compliance measures, enhance data quality, invest in staff training, and increase automation to improve efficiency. By tackling challenges, banks can improve their ability to meet future demands related to sanctions management and effectively navigate the changing environment.
For more details, download the report and reach out to us for follow up discussions.