An FCA Sanctions Audit: How Ready is your London Market Firm?

If the FCA contacted your firm tomorrow, how confident would you be in your response?

Could you explain your sanctions exposure, demonstrate how your controls work and produce the evidence to support your answers?

Most London Market firms will have a sanctions policy and screening arrangements in place. But can everyone involved explain how those arrangements operate, where responsibility sits and how their effectiveness is assessed?

Brighter Consultancy recently supported a London Market firm through an FCA sanctions audit. The experience reinforced the importance of understanding the operation in detail, having the evidence ready and ensuring suppliers are prepared and willing to respond quickly. Supplier readiness proved particularly important, and Global RADAR deserve a special mention for their expertise and hands-on support throughout the audit.

Start with the business and its exposure

For insurers, brokers and managing agents, sanctions exposure extends across the insurance lifecycle.

A placement may involve several parties across different jurisdictions. Delegated authority arrangements introduce further responsibilities and dependencies. Claims and payments can involve parties who were not known when the risk was first written.

A firm needs to explain how its controls address that exposure. Who is screened, at what point, using which information? What happens when a party changes or new information becomes available?

Those answers need to reflect what happens in practice across the business.

Understand what sits around the screening tool

The screening tool is an important part of the control, but its effectiveness depends on the wider process.

Relevant information needs to reach it. Screening settings need a clear rationale. List updates need to be managed, alerts reviewed and concerns escalated to the right people.

Where a supplier or another group company performs part of the process, the firm still needs to understand how that service operates and how it is overseen.

Useful questions include:

• How do we know all relevant parties are being screened?
• What evidence supports our matching settings?
• How quickly are list changes reflected in screening?
• How are alert decisions checked?
• Can we trace an escalation through to its final outcome?

These are questions worth working through before an audit request arrives.

Make sure the evidence is accessible

An audit response can require input from compliance, operations, technology and external suppliers.

Policies may be readily available, while screening records, quality assurance results and supporting data sit elsewhere. Even where controls are operating well, bringing that evidence together can take time.

Preparing in advance helps identify what is available, who owns it and where there are gaps. It also gives the firm an opportunity to check whether the evidence supports the way the process has been described.

Give senior leaders a clear view

Senior management should be able to explain the firm’s sanctions exposure and how they oversee it.

Reporting should help them understand where controls are working, where issues have arisen and what action is being taken. Alert volumes alone will not provide that picture.

Evidence of discussion, challenge and follow-through helps demonstrate how effective oversight operates in practice.

Rehearse the technical response

Could your screening supplier stand up a parallel test environment, screen hundreds of thousands of names and return the results in the required format within a very short deadline?

That is worth establishing before you need to do it.

The environment needs to mirror the relevant production configuration, with the screening settings and lists documented. The exercise should also test whether results and supporting audit logs can be produced in the requested format without disrupting day-to-day screening.

The volume, scope and deadline will depend on the FCA’s request. A mock exercise can help identify capacity constraints, setup delays and reporting problems in advance.

Supplier preparation matters just as much. Responsibilities, resources, turnaround times and commercials should be agreed beforehand, with a clear plan ready to put into action.

You do not want to spend the response period negotiating costs or discovering that the people needed to run the test are unavailable.

How Brighter can help

Our experience of supporting a London Market firm through an FCA sanctions audit gives us a practical understanding of the preparation involved.

Brighter helps firms review their sanctions exposure, governance, screening and escalation processes, and the evidence supporting those controls. We identify gaps and help prioritise the actions needed to improve readiness.

We can also help firms prepare and coordinate a mock screening exercise with their supplier, checking that the technical response, reporting requirements and delivery arrangements are ready when needed.

For Boards and senior leaders, we offer focused discussions to test their understanding of the framework and the assurance they receive.

If you would like to understand how ready your firm is, we offer a free, confidential initial consultation to work through your current arrangements and identify areas that may need attention.

Get in touch if you would find that useful.