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Four steps to strengthening sanctions compliance risk management when providing maritime finance

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As maritime risks increase and the regulatory environment becomes more demanding, so does the emphasis on due diligence and compliance controls when providing maritime finance.

Finance teams need to understand current and evolving risks, ensure they have comprehensive information about all the vessels and shipments on their portfolios, and perform stringent real-time checks to satisfy compliance. Can you detect potentially illicit behaviours such ship-to-ship transfers, deactivation of tracking systems and frequent flag-hopping?

Why is compliance risk management getting more complex?

Stricter guidelines and environmental responsibilities

The rules and guidelines the industry must work to are getting stricter. One example is the advisory on illicit shipping and sanctions evasion issued by the Office of Foreign Assets Control (OFAC), in conjunction with other US authorities. Building on earlier advisories, it listed a wide range of deceptive practices and reinforced the need for compliant finance.

Lenders also have environmental, social and governance (ESG) issues to consider, including the Poseidon Principles which aim to promote more sustainable shipping. Meanwhile, the International Maritime Organization’s IMO 2020 sulphur reduction plan encourages finance teams to exercise due diligence to identify counterparties who are not compliant.

The cost of mistakes is high

Therefore, Finance teams need a consistent, global, timely approach to sanctions compliance. Even unintentional breaches can and do result in large fines. In more extreme cases, there can be loss of access to the US financial market and even criminal penalties.

The Four Poseidon Principles

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How can lenders navigate complexity for smarter compliance risk management?

To achieve a world-class level of compliance risk management in a challenging and shifting landscape, financial institutions should always:

  • Demand superior data

Advanced, high-quality maritime data is at the heart of successful screening and compliance checks. At Lloyd’s List Intelligence, we’ve developed a quality framework COACT to ensure critical finance decisions are based on the most complete and reliable data from sources worldwide. The COACT data quality framework contains five key attributes of our standards of quality: Consistency, Origin, Accuracy, Completeness, and Timeliness.

  • Understand and observe the regulations and guidelines

Like the shipping industry itself, maritime regulations are continually on the move. Rules and guidelines must keep pace with the dynamics of international commerce, sanctions evasion tactics, geopolitical shifts and environmental issues. 

  • Evaluate and manage risk effectively

Identifying illegal behaviour is complex and demanding. Effectively assessing financial compliance risk involves many interconnected tasks to ensure risks are thoroughly evaluated and controlled.

  • Harness specialist talent, resources, and artificial intelligence (AI)

Staying on top of compliance today increasingly requires banks to have maritime compliance expertise with a detailed understanding of shipping itself to be able to make risk judgments. Access to the right expertise, backed by the latest digital technologies, will enhance financial control and performance.

To learn more on each pillar and its best practice, read our eGuide on Word- class Compliance Risk Management