Governance, risk & compliance
(PIIE), says that until troops began to move, the working assumption among bankers had been that a full-scale attack was unlikely. He adds that though some financial institutions were taking steps to limit their exposure to Russia, the speed and severity of subsequent sanctions was massively unexpected, requiring a lot of improvisation by banks. “I’m not sure it was prepared,” Véron says of European banking. “I think it took many people by surprise.” In the first few weeks of the war, the EU sanctioned six of Russia’s major banks and one so-called nonbank – financial institutions that don’t have a full banking licence but do provide financial services – equating to a quarter of the country’s total banking assets. At the same time, the US went much further, bringing actions against 64% of Russia’s financial asset holders.
Banks, for their part, had to respond immediately to the complex new prohibitions imposed on them. These comprised three elements: sanctions against Russian individuals and businesses, meaning those providing financial services had to ensure they were complying with things like asset freezes; sanctions against Russian banks, severely restricting the type of business that could be done with them; and sanctions against Russia’s Central Bank.
In terms of sanctions against Russia – and ally Belarus – the restriction of access to the financial messaging service SWIFT perhaps garnered the most coverage. The European Council said affected banks would not be able to receive foreign currency, which would have predictably negative consequences for both Minsk and Moscow. Véron says the SWIFT move was “significant” – but criticises the delay in cutting Russia’s Sberbank off from the mechanism, unlike action taken in the US. As he puts it: “Among 20 jurisdictions, I can’t think of another one where a single bank has such a big chunk of the sector. This, in my opinion, probably explains why the EU has been so slow to introduce blocking sanctions and even disconnect a number of Russian banks from SWIFT, because they still want to have these export relationships, at least for a certain time, for better or worse.”
Speaking to the European Parliament in early
May, however, von der Leyen said the EU would “finally de-SWIFT Sberbank” as part of its next round of sanctions – as it finally did at the end of that month.
Cutting through complexity Sanctions out of Washington, said initially to pack a bigger punch than the EU’s, had sizable implications for world banking – they were punishing for both Russia and those trying to work within their constraints. “When folks outside the banking industry hear us say ‘oh my goodness this is complex and comprehensive’ they tend to want to know why,” says
Future Banking /
www.nsbanking.com
Daniel Gutierrez, the Financial and International Business Association’s co-chair of the legal and regulatory affairs committee, as well as vice- president and regulatory risk manage at Florida- based Ocean Bank. As Gutierrez explains, that’s largely because of the sanctions’ “do’s and don’ts”. They are also fluid, often being enhanced and added to.
“When folks outside the banking industry hear us say ‘oh my goodness this is complex and comprehensive’ they tend to want to know why.”
Daniel Gutierrez
This complexity stems largely from bureaucratic sprawl. In the US, the Office of Foreign Assets Control (OFAC) oversees compliance with economic sanctions brought against third parties. Complicating things further are other departments, such as the US Financial Crimes Enforcement Network and the US Department of Commerce. Gutierrez says that once you think you’ve got the measure of sanctions, you get hit with another wave. “There are constant updates to the list,” he says, all wrapped up in what he calls “extremely complex and very vague verbiage”. In response to just one new guidance from OFAC – prohibiting US persons, wherever they’re located, from exporting, reexporting, selling or supplying, directly or indirectly, accounting services to any person located in the Russian Federation – the Ocean Bank team had to act fast. “We had to go into our database and pull, by code, the type of customer in question and then publish or draft a letter to send to them, advising them of the prohibition,” explains Gutierrez. “We then had to get with each and every one of these account officers to
229
Daniel Gutierrez, vice- president and regulatory risk manager at Ocean Bank, and co-chair of the legal and regulatory affairs committee at the Financial and International Business Association.
The number of operating banks in Russia. Of
these, 227 have a universal licence and 102 a basic licence.
€24.9bn
The amount lost by Russian banks in the first half of 2022, with two thirds related to foreign currency operations.
Bank of Russia 45
Ocean Bank
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