The UK banking industry was caught off guard when sanctions were swiftly imposed on Russia last year. And the speed and extent of these sanctions revealed a glaring gap in compliance readiness.

With tensions between the West and China now escalating, surely it is time for the banking industry to ask itself: Will we be better prepared this time?

Neil Whiley, director of sanctions at UK Finance, recently shared that financial institutions are working with the government on scenario planning for China. While this is a positive step, is it sufficient? Recent data collected by my firm SmartSearch, indicates otherwise.

Challenger banks slow to optimise onboarding

Nearly half (48%) of challenger banks acknowledge that they are yet to update their customer onboarding processes. In contrast, traditional banks appear to be more proactive with just under a third (31%) not having made such updates. This situation persists despite the hard lessons learned from last year’s Russian sanctions.

These concerns are underpinned by the fact that almost a third (32%) of the same banks are not confident that their current clients are free from sanction or PEP (Politically Exposed Persons) lists.

The speed at which sanctions were imposed on Russia caught many regulated firms off guard. Our survey data shows that firms are still not taking adequate steps to ensure they are not dealing with sanctioned individuals or corporate entities.

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But the issue goes beyond the initial screening to continuous status monitoring. Sanctions are not a static list. They are dynamic and can change rapidly without warning. Regulated firms that think a one-time check will suffice are not just being naïve, they are also risking eye-watering fines and significant reputational damage.

The UK government has been proactive in global sanctions, coordinating asset freezes against Russia’s largest bank, Sberbank, and Credit Bank of Moscow last year. With China now firmly in focus, similar comprehensive measures could well be just around the corner. Sanctions are a reflection of geopolitical realities and must always be treated as such.

Digital compliance to safeguard business more critical than ever

So, what can be done? The role of digital compliance in safeguarding businesses is more critical than ever. Electronic Verification (EV) can be a significant asset in the fight against the criminal gangs that target our financial system.

Inadequate digital compliance can provide a vehicle for money laundering and a front for some of the world’s worst crimes – including people trafficking, tax evasion, internet fraud, and sanction violations. Its victims are often the poorest and most vulnerable in society.

Real-time alerts ensure that companies are immediately informed if a client becomes a sanctioned entity. The adoption of EV enables firms to adapt to the rapidly changing sanctions landscape, and leveraging digital compliance can make all the difference in being prepared for the geopolitical challenges that lie ahead.

Martin Cheek is the MD of SmartSearch