Asset management firms face increasing scrutiny when it comes to complying with global sanctions regulations. Failing to meet these obligations can result in severe financial penalties and reputational harm.
According to Moody’s, to manage this risk, firms must implement robust sanctions screening processes for both new and existing clients, particularly high-net-worth (HNW) individuals. Monitoring for links to sanctioned entities or jurisdictions is essential to prevent regulatory breaches.
When a firm identifies a potential sanctions issue, prompt action is vital. Regulatory bodies expect firms to swiftly reject, block, or freeze affected assets. Delays in taking action can raise red flags with enforcement agencies and increase exposure to penalties. These compliance duties apply across the financial services sector — including asset managers — and depend on the regulatory requirements of their operating jurisdictions.
To mitigate risk effectively, asset managers must maintain an always-on compliance infrastructure. This includes screening clients and beneficial owners continuously to detect evolving sanctions risk. Doing so not only ensures regulatory adherence but also reinforces a firm’s commitment to ethical standards and can improve investor trust.
Continuous client screening is a key element in any effective sanctions compliance framework. Sanctions risks are not static; individuals who were compliant at onboarding may later be added to a sanctions list. By continuously monitoring clients, firms are better equipped to detect changes and act accordingly. A strong screening programme also contributes to a firm’s reputation for sound risk management.
There are four critical considerations for strengthening sanctions compliance in asset management. First, ongoing Know Your Investor checks are essential, as sanctioned status can change over time. Second, firms must understand extraterritorial risk — such as exposure to US sanctions when dealing in dollars or involving US persons, even if operating outside the US. Third, risk-based controls tailored to a firm’s client base and jurisdictional exposure should be implemented. This might include automated sanctions screening, escalation workflows, and targeted staff training. Finally, when a sanctions hit is confirmed, quick reporting and asset blocking are crucial. Delays can heighten liability.
To assess whether a client is directly or indirectly sanctioned, firms need a layered approach. Direct matches on sanctions lists must be flagged, but asset managers must also consider ownership and control relationships. If a client is majority-owned or controlled by a sanctioned party, they too may be subject to restrictions.
Using technology, firms can automate the initial onboarding screening and ensure continuous monitoring across multiple international lists. Enhanced tools that integrate ownership data, shell company risks, and adverse media can surface hidden risks. This helps firms go beyond list-matching and understand the broader risk landscape. Periodic reviews and audits of the compliance programme also ensure it remains aligned with current regulations and industry expectations.
Sanctions compliance is no longer just an administrative task. It plays a strategic role in helping asset managers navigate today’s complex regulatory environment. Leveraging technology, maintaining constant vigilance, and adopting a proactive approach can bolster investor confidence and ensure long-term operational resilience.
Copyright © 2025 RegTech Analyst
Copyright © 2018 RegTech Analyst
