Regulations extend banks’ UK trade sanctions reporting obligations

The new rules will require the institutions to notify the Secretary of State “as soon as practicable” when they become aware, or have reasonable cause to suspect, that a third party they are dealing with has breached a prohibition or failed to comply with an obligation under trade sanctions regulations, where the information or other matter on which the knowledge or cause for suspicion is based came to them in the course of carrying on their business.

Where the duty to report is triggered, the institutions must provide the Secretary of State with the information or other matter on which the knowledge or suspicion is based, and any information it holds about the third party by which it can be identified.

The new reporting obligations are set out in the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024, which also provide for a new civil enforcement regime for trade sanctions in the UK. The regulations come into force on 10 October.

All UK trade sanctions are currently administered by the Export Control Joint Unit within the Department for Business and Trade and enforced on a civil basis by His Majesty’s Revenue & Customs (HMRC). They include restrictions on exporting, supplying, delivering or making available listed goods and technology; restrictions on providing financial, insurance and technical services related to listed goods and technology; as well as restrictions on brokering (including arranging and negotiating) the provision of restricted goods and services. Further specific trade sanctions have been imposed in relation to Russia and many other countries.

“UK banks are already familiar with the need to screen the trade and business financing deals they are involved in to make sure that they themselves are not in breach of trade sanctions,” said regulation and compliance expert Melanie Ryan of Pinsent Masons. “The new regulations mean banks will now need to consider their customers’ compliance with trade sanctions and report where they identify or suspect that a breach has occurred.”

“The reporting obligations do not extend to where they suspect a customer may or will breach trade sanctions, however they add to a suite of existing reporting duties that arise in other compliance areas such as financial sanctions and money laundering,” she added.

It will be a criminal offence for institutions to fail to comply with their reporting obligations. They will also be subject to enforcement action by the Office of Trade Sanctions Implementation (OTSI) under the new civil enforcement regime being introduced. OTSI, a division within the Department of Business and Trade, will be up and running from October 2024.