Russian Sanctions and the obligations of CySEC Regulated Entities

Russian Sanctions and the obligations of CySEC Regulated Entities

Sanctions regimes against Russia are changing fast.

The three main sanctions regimes targeting Russia so far are the United States, European Union & the United Kingdom. On 25 February 2022, the EU decided to freeze the assets of Russia’s President Vladimir Putin and and its foreign affairs minister Sergey Lavrov. In addition, the EU imposed restrictive measures on the members of the National Security Council of the Russian Federation and on the remaining members of the Russian State Duma who supported Russia’s recognition of the self-proclaimed Donetsk and Luhansk “republics”.

In the light of this situation, Cyprus Securities and Exchange Commission (“CySEC”) has issued circular c489 in order to remind  Regulated Entities of their obligation to implement all relevant measures imposed by EU and competent organizations in response to the crisis in Ukraine.

Our Compliance team provides some tips below and your obligations as a CySEC Regulated Entity.

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What are Sanctions?

The term “sanctions” refers to:

  • restrictions and/or prohibitions on activity with targeted countries, governments, groups, natural and legal persons, and industries
  • imposed by bodies such as the United Nations (“UN”) and the EU.

They can include a variety of measures ranging from:

  • arms embargoes,
  • travel bans,
  • asset freezes,
  • reduced diplomatic links,
  • reductions/ cessation of any military relationship,
  • flight bans,
  • suspension from international organizations,
  • withdrawal of aid,
  • trade embargoes,
  • restriction on cultural/ sporting links and other.

It should be noted, that although only restrictive measures imposed by the UN and the EU are legally binding, there are individual country sanctions lists that should be taken into consideration when on-boarding clients and when processing transactions.

Scope of financial sanctions

Financial sanctions consist of:
• Freezing of funds and economic resources of designated persons and entities, and
• A prohibition on making funds and economic resources available to such persons and entities.

Obligations for Entities and Senior Management Responsibilities

The obligations of Regulated Entities include taking measures for listed individual and entities (designated persons), where applicable.

Firms should have a sanctions policy that encompasses deep understanding of the legal requirements and is designed to ensure compliance with the applicable Sanctions and Terrorism Laws.
The sanctions policy should include the sanctions risk assessment procedures, KYC/CDD procedures which incorporate sanctions related procedures, tailored-made training of personnel specifically for sanctions, consequences of non-compliance etc.

Furthermore, a sanctions compliance program should be developed and implemented by the firm. The sanctions compliance program should be appropriate, adequate, proportionate to its nature and size and effective in order to manage and mitigate the sanctions risks faced by the firm.

An appropriate sanctions compliance program should include, as a minimum, the following:

  • The establishment of a sanctions risk assessment
  • The development of policies, procedures, systems and controls
  • Screening processes
  • Reporting matches and breaches of the sanctions’ regime
  • Training and awareness
  • Record keeping

Senior management has the ultimate responsibility for ensuring the designing, development and implementation of the firm’s Sanctions Compliance Program, policies, and procedures. Senior management must be aware and highlight the importance of understanding and complying with the firm’s policies and procedures as well as the consequences and implications of breaching the sanctions requirements.

Protecting your business from high-risk individuals has never been tougher. Why is that?

  • Sanctions lists change every day — Governing bodies use sanctions to impede the actions of high-risk individuals. As a result, sanctions list evolve constantly, with people being added and removed on a daily basis.
  • Sanctions are becoming more complex — Historically, sanctions were in place against states or organizations, whereas now they are often on individuals and even target specific sectors.
  • Sanctioning bodies are increasing — The number of bodies issuing sanction lists is steadily increasing. As a result, keeping your finger on the pulse has become impossible without the use of a sophisticated compliance solution.
  • They are the first line of defence, allowing you to identify criminal fugitives before doing business with them.
  • Failing to identify such customers preemptively can have devastating consequences.
  • If you’re business was to unwittingly aid the work of terrorists or money launderers it would likely spell the end.

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CySEC’s requests per Circular c489

In relation to the targeted restrictive measures imposed to Russia, CySEC requires Regulated Entities to perform the below:

  • Implement appropriate actions/measures and/or freeze immediately all funds and/or economic resources on the designated persons or on behalf of other persons associated with the business relationship.
  • Inform CySEC, by Thursday, 3 March 2022, at the latest, using the email address aml@cysec.gov.cy, whether they have business relationships with designated persons or not. This notification must include the name of all designated persons that are subject to the restrictions, the type of the assets (e.g. cash, financial instruments) and their total value.
  • In the case of further Restrictive Measures/Sanctions against Russia in response to the crisis in Ukraine, all Regulated Entities must inform CySEC within a reasonable timeframe, as in the second bullet-point above.

Furthermore, CySEC expects Cyprus Investment Firms (CIFs) to assess the risks arising from the targeted restrictive measures and where these significantly affect their operations, their capital adequacy and/or the funds they hold, either on their own or on behalf of their customers, to inform CySEC at the email address prudential@cysec.gov.cy about the measures that have been taken to address the above-mentioned risks by Thursday, 3 March 2022, at the latest. The CIFs need to assess risks on a continuous basis within the framework of the Internal Capital and Risk Assessment (ICARA).

 

How can CX Financia Help You?

If you are looking for a way to strengthen and organize your Company’s compliance mechanism and provide your employees with the necessary training to help them protect your entity from hefty fines  you should reach us.  We look forward to being of value in covering your needs on your compliance program or personnel training.

C.X. Financia offers a wide range of support services that will help your organization design and execute an effective approach to AML. Through tailored training programs for employees, we can:

  • Undertake the preparation and establishment of the relevant Sanctions Policy and Sanctions Compliance Program
  • Help design an effective Anti-Money Laundering Program to support your organization’s compliance and regulatory obligations.
  • Provide your employees with the necessary training
  • Help you understand best practices and guidelines in relation to sanctions, money laundering, and terrorist financing issues.

Our experienced team is ready to help your AML department address modern challenges in today’s technology and regulatory climate. Contact us today to arrange your personalized training

Contact us and find out more about our services at info@cxfinancia.com

 

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