Sanctions as part of the FIN-FSA’s supervisory work

The AML Act was reformed on 31 March 2023. The FIN-FSA was vested with the authority to supervise, in addition to money laundering and terrorism financing, that financial market participants have effective policies, procedures and internal control to ensure compliance with sanctions. Due to the legislative amendment, the FIN-FSA will be able to intervene more effectively than before in any shortcomings and failures detected in sanctions compliance.

Entities obliged to report under the AML Act must, as part of their customer due diligence procedures, also consider the financial sanctions imposed by the UN Security Council and the EU as well as national freezing orders to prevent the financing of terrorism, which are issued by the National Bureau of Investigation.

These changes stem largely from the OECD member states’ common Financial Action Task Force (FATF) and its findings presented in the 2019 country assessment on Finland, highlighting, among other things, supervisors’ lacking powers in the supervision of financial sanctions.

Many authorities participate in the implementation and supervision of sanctions in Finland. The competent authority in the area of sanctions is the Ministry for Foreign Affairs, whose tasks include handling exemption requests and issuing interpretation guidelines. The National Enforcement Authority is responsible for the implementation of asset freezes, Customs oversees the supervision of export and import sanctions, and the Border Guard is tasked with preventing entry by sanctions-listed parties into the EU area. When an authority has grounds to suspect, for example, a breach or evasion of sanctions, it is investigated by the Police. Furthermore, as regards sectoral sanctions, several other authorities participate in the supervision, including the Transport and Communications Agency Traficom.

Supervision strategy for prevention of money laundering and terrorist financing and for compliance with financial sanctions

In spring 2023, the FIN-FSA published an AML strategy aimed at reducing the risk of money laundering, terrorist financing and non-compliance with sanctions in the activities of supervised entities. With the new strategy, the FIN-FSA communicates to supervised entities and the public on the principles and practices of anti-money laundering supervision.

According to the strategy, one of the key areas in the development of the competencies of the FIN-FSA personnel in the next few years is financial sanctions and the supervision of the appropriateness and effectiveness of procedures established to ensure compliance with them.

In November 2023, the FIN-FSA arranged a seminar on current themes in anti-money laundering and sanctions supervision, which had an audience of over 60 participants on site and almost 800 remotely. The topics covered in the seminar included de-risking, the FIN-FSA’s supervisory findings and detection of sanctions evasion. In addition, the FIN-FSA has delivered presentations, for example in training events on sanctions organised by the Ministry for Foreign Affairs for other authorities.

Regulations and guidelines on sanctions

As regards the supervision of conduct concerning sanctions, the most important task in 2023 was to prepare and issue regulations and guidelines on sanctions for entities supervised by the FIN-FSA. This was the first set of guidance prepared by the supervisor on sanctions risk management for the Finnish financial markets.

A draft set of regulations and guidelines was prepared in the spring and early summer of 2023, followed by a public consultation round and a separate hearing. Lots of consultation feedback was given, and requisite revisions were made to the draft version based on the feedback in autumn 2023. The Board of the FIN-FSA approved the publication of the regulations and guidelines in December 2023.

The objective of the regulations and guidelines is to ensure that supervised entities understand sanctions risks related to their activities and arrange effective and adequate means to manage and mitigate these risks. In recent years, sanctions have been imposed on Russia, in particular. It is important that supervised entities have effective risk management processes to comply with sanctions.

Supervision of compliance with the regulations and guidelines will be an essential part of sanctions-related supervision by the FIN-FSA. The regulations and guidelines enter into force on 1 March 2024.

Supervisory actions and risk assessment as the main themes for 2024

After the entry into force of the regulations and guidelines, the main focus in 2024 will shift to supervisory actions and work on risk assessments. As regards supervisory actions, in 2024 there will be, for example, on-site inspections focused on sanctions.

The consideration of sanctions is also important in the FIN-FSA’s risk assessment work from the perspective of supervision. In 2024, a risk assessment will be conducted on sanctions, with the aim of mapping sanctions risks related to supervised entities. The risk assessment will be based on data from 2023, collected from supervised entities in January-February 2024.

Operating environment from a sanctions perspective

The main attention regarding sanctions remains on sanctions imposed on Russia. It is likely that new sanctions will be imposed in 2024. Besides imposing sanctions, another focus area going forward will be the prevention of sanctions evasion. This may mean, for example, designating new persons who have participated in sanctions evasion, and also closing the loopholes of previous sanctions regulations.

In the future, the FIN-FSA’s sanctions-related supervisory efforts will also focus, in particular, on the prevention of sanctions evasion.