EBA Proposes Guidelines for Strengthening Internal Policies and Controls to Mitigate Risk of Non-Compliance with Union and National Sanctions

The European Banking Authority (EBA) has initiated a public consultation on two sets of guidelines designed to fortify internal policies, procedures, and controls, focusing on the implementation of Union and national restrictive measures. These measures, comprising both individual and sectoral sanctions, carry legal obligations for entities operating within the jurisdiction of Member States. The consultation period will extend until March 25, 2024.

The guidelines, if accepted, would mark a significant step by the EBA to foster a collective understanding among payment service providers (PSPs), crypto-asset service providers (CASPs), and their supervisors concerning the imperative steps needed to ensure compliance with restrictive measures.

Vulnerabilities in internal policies and controls expose financial institutions to legal and reputational risks, as well as the threat of substantial fines in case of non-compliance. Such deficiencies not only jeopardize the effectiveness of the European Union's restrictive measures regimes but also pose risks of circumvention and threats to the stability and integrity of the EU's financial system.

The first set of draft guidelines targets financial institutions and prudential supervisors, articulating common regulatory expectations regarding the role of senior management, internal governance, and risk management within the context of restrictive measures.

The second set of draft guidelines focuses on PSPs and CASPs, detailing the actions they should undertake to comply with restrictive measures when engaging in transfers of funds and crypto-assets. Particular emphasis is placed on areas such as know your customer (KYC), screening, and due diligence.

The EBA invites stakeholders and interested parties to provide their comments on the consultation paper by March 25, 2024, through the consultation page on the EBA's website. A virtual public hearing is scheduled for February 8, 2024, from 10:00 to 12:00 CET, providing an opportunity for further discussion. Interested parties can register for the public hearing until January 31, 2024.

The EBA's initiative underscores a commitment to addressing broader internal controls and risk management issues. By clarifying how restrictive measures policies and procedures interact with financial institutions' wider governance frameworks, the EBA aims to mitigate operational and legal risks, ensuring the effective implementation of restrictive measures in the financial sector. All contributions received during the consultation will be made public unless otherwise requested.

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