The European Union (the “EU”) has adopted financial sanctions in response to Russia’s military attack against Ukraine. Sanctions are an essential tool in the EU’s common foreign and security policy as it allows for the EU to intervene where necessary to prevent conflict or respond to current crisises. As a result of this, individual Member States are responsible for identifying any breaches of sanctions in the EU and imposing penalties if necessary. The European Central Bank (“ECB”) has issued FAQs highlighting certain concerns in this respect.
The FAQs cover a number of matters, including, inter alia, the role of the ECB banking supervision in the financial sanctions adopted by the EU, banks and their compliance with such sanctions, the communication of the ECB with other supervisory authorities, as well as the ECB’s efforts to prevent possible cyberattacks.
The ECB banking supervision does not impose these sanctions, nor does it monitor banks’ compliance with them, rather, it oversees a banks’ governance and internal control systems since they play a crucial role in steering a bank’s compliance with the sanctions. In practice, this includes inter alia having strong oversight from the board and senior management on the impact of these sanctions, as well as having strong internal control functions such as risk management arrangements for the approval of transactions and engagement with clients. Thus, it is the banks and other financial insitutions themselves that are responsible for implementing and monitoring compliance with the different sanctions’ regimes. The banks’ effort in complying with these sanctions could possibly lead them to consider selling or abandoning their Russian operations. In light of this, the ECB banking supervision is in close contact with the banks that are mostly affected and also works closely with supervisory national competent authorities to carefully monitor their impact on such banks. The determination of whether a sanction regime has been breached lies in the hands of the relevant national competent authority, who may impose fines or possibly trigger criminal investigations. The ECB may then respond in a prudent manner by taking into consideration the event of breach when assessing the bank’s governance framework or when assessing the bank’s authorisations.
In a nutshell, banks are urged to implement, monitor and comply with the sanctions regimes adopted in response to the russia-ukraine war b should ensure that their procedures will result in the mitigation of legal and reputational risks.