Joint Crisis Center – Financial Services
Consequences of the War in Ukraine on Financial Services
Since the start of the war in Ukraine, the West – led by the USA, UK and EU – have enacted numerous packages of sanctions. These primarily aim to significantly weaken the Russian economy and the political elite of the country. They also have effects on cross-border financial services and payment transactions. For example, restrictions on transactions with the Central Bank of Russia and other public institutions have frozen approximately 50 percent of Russia’s financial reserves and major Russian banks have been locked out of the SWIFT system. Market participants are now faced with three key challenges in relation to payment transactions:
- Legal categorization of the effects of the sanctions
- Development of concepts for compliance with sanction requirements and adjusting to structural changes
- Consideration of the effects on crypto assets
Urgent questions with regard to financial services
Compliance with sanctions
- What measures need to be taken in order to comply with embargo and sanction requirements?
- What options exist for automating control and monitoring processes?
- Beyond the obligatory EU sanctions, what further restrictions do institutions in Germany have to observe, e.g. sanctions imposed by the USA or UK?
Payment transactions
- What measures can be taken to reduce risk in payment transactions?
- What effects do the sanctions on Russia have on cross-border flows of money and payments?
- Should we expect that autocratic states will be locked out of international payment systems at a increasing rate in future?
- How will these changes affect cross-border transfer services and international instant payment systems?
Crypto assets
- What changes have been observed in flows of crypto payments since the outbreak of war?
- What dangers exist with regard to sanctions being circumvented using crypto currencies?
- How secure are crypto exchanges?
- Opportunities from crypto: What options and opportunities exist with regard to integrating crypto assets into existing business models?
Current challenges
Legal categorization of the effects of the sanctions
The intensification of warfare in Ukraine is leading to increasingly tougher sanctions. The requirements enacted by way of EU regulations are immediately applicable throughout all member states. Market participants must ensure compliance with sanctions law on their own responsibility. Therefore, it is particularly important to gain an overview of the applicable rules, obtain regular updates on changes and ensure compliance with the applicable requirements in ongoing business operations.
Concepts for compliance with sanction requirements relating to payment transactions
New and increasingly far-reaching embargo and sanction requirements are resulting in greater workloads relating to the performance of control and monitoring tasks. Many controls can be automated by using monitoring systems. However, the increasing complexity of requirements means that manual examinations are becoming necessary with increasing frequency. For banks, this means that risk policies, controls and systems have to be continuously adjusted in accordance with sanction requirements. At the same time, packages of sanctions are resulting in structural changes in the field of payment transactions and are having a particularly acute impact on transfer services and instant payment systems.
- Continuous monitoring of new restrictions
- Updating sanctions lists and applying them in their entirety
- Adjusting settlement instructions and control mechanisms
- Expanding capacities to cover the additional manual workload for controls
- Improvement of automated monitoring systems and controls
Crypto assets
In terms of their public image, crypto currencies are still often perceived as something that are primarily used for prohibited transactions and that provide little security against money laundering or the financing of terrorism. Therefore, it has been easy to imagine that crypto currencies could be used to circumvent sanctions. Nevertheless, there are now strict restrictions in place for crypto exchanges in numerous jurisdictions. While an increase in transactions from rubles to Bitcoin was, for example, indeed witnessed at the start of the Ukraine crisis, this was very moderate in scale compared to the assets of oligarchs that have been affected by sanctions. In this context, it must also be borne in mind that independent crypto currencies also make financial transactions possible for Russian citizens that are affected by restrictions on fiat payment transactions. Transactions in crypto assets are subject to significantly stronger regulation than continues to be assumed. Nevertheless, certain aspects must be taken into consideration in order to integrate crypto assets into existing business models.
- Risks of oligarchs seeking refuge in crypto currencies
- Challenges for distributed financial ecosystems
- Compliance with regulatory requirements for crypto exchanges
- Challenges for the integration of crypto assets into existing business models
How we can assist you
Compliance with sanctions
- Regulatory advice on the implementation of financial market sanctions
- Operational assistance with adherence to sanction requirements
- International regulatory monitoring
- Forensic services and internal investigations, including communication with supervisory authorities
- Prevention of financial crime
- Development and implementation of risk and compliance guidelines
- Training on regulatory issues for members of management, the supervisory board, risk and compliance departments as well as traders and marketing departments
Crypto assets
- Definition of crypto business models and strategies
- Regulatory advice for secure trading and the custody of crypto assets
- Assistance with applications for crypto trading and custody licenses as well as the development of the necessary functions and processes
- Communication with supervisory authorities
- Development and implementation of risk and compliance guidelines
Are you prepared?
- Performing an impact analysis of the business segments affected by sanctions
- Review and adjustment of transaction monitoring relating to sanction requirements
- Implementation of tighter controls for potential circumventing transactions
- Implementation of processes for compliance with country-specific embargoes
- Implementation of a document hierarchy check
- Acceptance of crypto currencies within existing payment flows
- Technical integration of blockchain solutions and management of crypto keys
Follow us
Contact us
Lothar Müller
Director, Risk & Regulatory, Forensic, PwC Sanctions & Trade Compliance Center of Excellence, PwC Germany
Tel: +49 160 5364479
Partner, Financial Services Governance, Risk & Compliance, PwC Germany
Tel: +49 170 5473450
