CySEC’s Circular C685: Guidance on Sanctions Screening Systems

The Cyprus Securities and Exchange Commission (CySEC) has issued Circular C685, introducing Guidance on Sanctions Screening Systems to strengthen compliance measures across regulated entities. The guidance follows thematic inspections conducted between April and November 2024, which assessed the effectiveness and efficiency of sanctions screening practices in various financial sectors.

Key Findings from CySEC’s Thematic Inspections

CySEC’s inspections evaluated compliance with United Nations Security Council Resolutions (UN Sanctions) and European Union Council Decisions & Regulations (EU Restrictive Measures) while also considering practices related to U.S. and UK sanctions lists. The assessment revealed a mixed level of preparedness, with both commendable practices and significant deficiencies observed across firms.

Common Weaknesses & Deficiencies Identified

• Limited understanding of screening system capabilities – Many entities were unaware that their systems’ settings could be adjusted to improve accuracy.
• Underperformance in key screening metrics – Especially regarding fuzzy matching, where systems failed to detect manipulated or misspelled sanctioned names.
• High false positive rates – Excessive alerts made it difficult for compliance teams to efficiently review and manage flagged results.
• Reliance on manual screening – Some entities lacked automated tools, increasing the risk of human error and compliance gaps.
• Inadequate testing & quality assurance – Many firms failed to regularly test and calibrate their screening tools, leading to outdated or ineffective configurations.

Best Practices & CySEC’s Expectations

The Guidance also highlights best practices adopted by firms with strong compliance frameworks, such as:

• Implementing automated screening systems to enhance efficiency and reduce human error.
• Regularly testing & calibrating screening tools to optimize effectiveness (detecting sanctioned names) and efficiency (reducing false positives).
• Ensuring real-time ongoing screening against updated sanctions lists, rather than periodic or ad-hoc reviews.
• Establishing clear policies for sanctions compliance, including senior management oversight and dedicated compliance teams.

Next Steps for Regulated Entities

CySEC expects all regulated firms to benchmark their current sanctions screening processes against the guidance, implement improvements where necessary, and ensure that their screening tools meet global compliance standards.

Our Regulatory Compliance team at SALVUS is ready to assist regulated entities in aligning with CySEC’s Guidance on Sanctions Screening Systems.

For tailored guidance, contact us at info@salvusfunds.com

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