Optimizing Risk Assessments and Controls

Now that you’ve established an efficient risk assessment and control framework, it’s essential to recognize that this effort is ongoing, not a one-time task. The real challenge lies in keeping your framework current, robust, and adaptable to the fast-evolving regulatory landscape. So, how can you achieve this? The answer is to maintain a continuous feedback loop. This loop should integrate insights from audits, internal breaches, exceptions, and the latest regulations, guidelines, red flags, and enforcement actions from regulatory authorities. By regularly incorporating this information into your framework, you ensure that your compliance efforts remain dynamic, responsive, and well-aligned with the complexities of today’s regulatory environment.

Building an Adaptive Risk Framework: The Power of the Feedback Loop?

Creating a robust compliance program starts with establishing a dynamic framework that thrives on continuous feedback. This means establishing an ongoing feedback loop where new information—such as regulatory updates, guidances, enforcement cases, internal breaches and exceptions —feeds back into your risk appetite, risk assessment and controls.

In a world of constant geopolitical flux, changing sanctions regulations and parties subject to restrictions, your risk assessment guides the creation of adaptive controls that protect your organization. By regularly updating your assessments, you can uncover new risks and red flags previously unnoticed, safeguarding your program from becoming outdated and reducing the risk of being exposed to regulatory breaches.

You should regularly update your assessment, and when you do, consider the following:?

• Have there been changes in sanctions regulations that apply to where we operate, or on our products or services?
• Have we introduced new products and services, or are we looking to enter new markets that increase exposure?
• Has there been a shift in our supply chain that requires a re-evaluation of our supplier risks??

When you update your risk assessment framework, it should seamlessly integrate into your broader feedback loop, ensuring that any newly identified risks prompt corresponding updates to your risk appetite and controls.

Leveraging Internal Feedback for Continuous Improvement

Incorporating feedback from breaches, exceptions, and regular control assessments is essential for maintaining an effective sanctions compliance program.?

• Breaches occur when sanctions violations happen, and when there is unauthorized activity outside of risk appetite, such as engaging with an EU-designated party. Learning the root cause of a breach always reveals where there is a gap, problem or failure in the risk assessment or control process.
• Exceptions are instances where senior management approves actions outside the company’s risk appetite. Too many approved exceptions indicate that your risk appetite doesn’t reflect the company's actual risk tolerance.?

Both breaches and exceptions provide insights into potential misalignments between your risk appetite and actual business practices. They highlight gaps where the company assumes more risk than intended and integrating these insights into your risk assessment processes enables your program to evolve with your operational realities. As neglecting breaches or routinely granting exceptions without thorough review can expose your organization to regulatory risks, it’s essential to focus on continuous improvement; this means refining your understanding of these risks and adjusting your compliance program accordingly. Regular audits and testing of your controls can also help you identify outdated practices and residual risks, enabling you to keep your framework responsive and aligned with the risk landscape your company faces.?

Incorporating Information from External Sources

One of the biggest challenges companies encounter is staying agile in the face of constantly evolving threats and shifting regulations. To maintain an effective compliance program, it’s also essential to continuously incorporate external information—such as regulatory updates, advisories, and enforcement actions—into your risk assessments and controls in real-time. This is where a well-established feedback loop becomes critical. As new risks emerge, they should directly influence both your assessment and control frameworks, prompting immediate updates to minimize exposure.

Rather than just acknowledging updates from authorities like the EU, UK, or US, you should treat them as actionable insights into activities that your organization should incorporate into your risk assessments and controls. For instance, advisories about manipulation of the Automatic Identification System (AIS) in the shipping industry should lead to updates in your risk assessment to flag relevant activities. You should also leverage enforcement cases as they often reveal control gaps.For instance, several US Treasury’s OFAC cases have highlighted failures in screening IP location data for customers in sanctioned jurisdictions and highlighted the need to strengthen controls in this area, which should prompt immediate action if you did not already have IP controls incorporated.

Staying informed about the latest guidances, advisories, and enforcement cases is vital, as they shape what regulators expect from you. Recent guidance from the US Commerce’s Bureau of Industry and Security (BIS) on Export Administration Regulations (EAR) for financial institutions and G7 recommendations on preventing sanctions evasion should be integrated into your compliance program. And certainly don’t overlook older guidances that remain relevant, such as those from the US Treasury and Coast Guard on sanctions evasion tactics in shipping—all such guidance from competent authorities must be evaluated and applied as appropriate to your compliance measures.

We know that businesses find it challenging to translate theoretical regulatory guidance into practical compliance actions, but making this integration a regular part of your compliance process and swiftly incorporating new risks into your compliance program ensures that your organization stays aligned with regulatory expectations and remains agile in addressing emerging risks.

Maximizing Value

At Sanctions Advisory, we pride ourselves on being efficiency experts dedicated to crafting compliance frameworks and controls that are robust and streamlined. Our mission goes beyond merely fulfilling legal requirements; we focus on optimizing your compliance processes to enhance operational efficiency and minimize long-term risks. Our approach is not about adding unnecessary complexity, but about integrating smart, effective measures that simplify compliance while preventing risks and violations to protect your company.

While effective risk assessment isn’t a simple checkbox exercise, we understand the value of having clear, actionable tools that give businesses confidence in their compliance efforts. Many firms need straightforward templates and checklists to ensure they've completed essential due diligence and met risk assessment expectations. We can help by providing an industry-tailored due diligence questionnaire and assessment checklist, ensuring not only that all critical steps are covered but that each one truly contributes to a robust compliance program.?

Stay tuned for our post-US-election insights on sanctions going forward!