Regulation post Covid: Part 2 (49) -17/3: Wider effects of Russian sanctions

As expected, signs are emerging that the impact of the UK Government's sanctions against Russian companies and oligarchs has starting to ripple beyond the strict requirements of the sanctions themselves.

Some of this is the FCA asking firms to "play a wider role", and some will be supervisors using their discretion to probe for themselves.

Given the scope of the work, much greater than when sanctions against Iraq and Iran were introduced, meeting the challenge could change the shape of UK regulators' approach to financial crime.

This will probably include much closer ties, and much better coordination, with NECC, NCA and SFO. And there will also now be pressure to upgrade the status of financial crime within FSMA, either to a primary objective, or perhaps more likely, a secondary one.

In addition, with the National Economic Crime Act coming in, the bar for "know your customer" will inevitably rise, both of firms' own volition, and due to the FCA paying closer attention to the standards currently in place. There will also be a greater expectation on all firms to reach existing levels of best practice.

In markets meanwhile, the FCA has announced it is discussing with stakeholders, including asset managers, the potential use of "side-pockets" to segregate illiquid Russian and Belorussian assets.

This is the sort of technical regulatory fix where the FSA/FCA has historically excelled.

However, the Markets function has been structurally downgraded within the regulator over recent years. It was deprived of the (admittedly short-lived) seat for its Director on ExCo; the Transaction Monitoring and Listing Depts were moved to sit with Enforcement as "Market Oversight"; and the remainder (policy and supervision) was then subsumed within the Strategy & Competition directorate.

Hopefully, there hasn't been any significant drain of talent or reduction in capability as a result of either these changes or of the more controversial people elements of the current Transformation Programme. But this next period will be Markets' biggest test since the great financial crisis.

Starting on 16 March 2020, I began writing daily blogs about the impact of the Covid crisis on financial regulation, and this has extended into commentary on regulation generally.?

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