The UK Government has introduced significant changes to reporting obligations for "Relevant firms" via the Sanctions (EU Exit) (Miscellaneous Amendments) (No 2) Regulations 2024 ("Amending Regulations"). These changes affect all UK sanctions regimes, including the Russia sanctions regime.
The key changes are:
- Broadened Definition of "Relevant firms" (that is, those subject to reporting obligations) – High-value dealers, art market participants, insolvency practitioners, and letting agents are now included. (Effective from 14 May 2025.)
- Lowered Reporting Threshold – Firms must report suspected breaches more broadly, even if they do not amount to criminal offences. (Effective now.)
In this article, we break down what these updates mean.
Broadened definition of "Relevant firms"
"Relevant firms" are listed in the UK's regulations that govern the specific sanctions regimes, e.g. The Russia (Sanctions) (EU Exit) Regulations 2019 ("Russia Regulations") in relation to the Russian Regime.
The types of business captured under "Relevant firms" are generally identical across the sanctions regimes, and include law firms, accounting firms, casino operators, cryptocurrency providers.
Under the Amending Regulations, the definition of "Relevant firms" will also include:
- high-value dealers – a firm/sole trader that trades in goods (including an auctioneer), where a transaction involves cash payment or payments exceeding 10,000 euros in total.
- art market participants – a firm/sole practitioner registered or required to register with HMRC as an art market participant. This excludes firms/sole practitioners that sell or store art works created by the participants themselves.
- insolvency practitioners – a firm/individual who acts as an insolvency practitioner as defined in the Insolvency Act 1986.
- letting agents – firms/sole practitioners conducting work related to instructions from landlords or tenants seeking to rent land for a term of a month or more, including actions leading to the conclusion of rental agreements.
Why the change?
The Explanatory Memorandum to the Amending Regulations notes that the inclusion of the four new sectors as 'Relevant firms' is to improve their compliance with the UK's sanctions law, as businesses in these sectors "can be utilised" (and, the EM says, have been utilised) by designated persons and have not proactively reported breaches of financial sanctions to OFSI.
OFSI notes, in its guidance for high value dealers and art market participants, that the inclusion of the two sectors as 'Relevant firms' is influenced by sectors' susceptibility to being used to evade the UK's financial sanctions, and to launder the proceeds of criminal activities. This includes the discreet nature of sales/purchases in these sectors allowing designated persons and/or entities to sell assets, launder money and transfer goods.
We note that this change only takes effect from 14 May 2025, giving businesses time to adjust their compliance processes.
Lower threshold for reporting to OFSI
Previously, 'Relevant firms' were required to inform OFSI as soon as practicable if they knew or had reasonable cause to suspect:
- a person was a DP; or
- a person had "committed an offence" under UK sanctions law.
The Amending Regulations have shifted the second requirement.
Now, "Relevant firms" are required to inform OFSI as soon as practicable if they know or have reasonable cause to suspect a person "breached a prohibition or failed to comply with an obligation" under UK sanctions law.
Why the change?
This change is intended to simplify compliance. A "Relevant firm" does not need to consider whether a person's conduct may amount to a criminal offence (for instance, if the person had a reasonable excuse for not complying with an obligation). Instead, the "Relevant firm" must simply consider whether they know or have reasonable cause to suspect the conduct was contrary to a prohibition or requirement under the relevant sanctions' legislation.
We note that relevant firms are only required to report the information or other matter on which the knowledge or cause for suspicion is based came to it in the course of carrying on its business. For example, in relation to a 'high value dealer', this means in the course of carrying on the activity mentioned in the definition of high value dealer.
Key takeaway
Failure to comply with reporting obligations is an offence attracting criminal and monetary penalties. So, businesses should:
- Assess whether they fall under the expanded definition of "Relevant firms."
- Update compliance procedures to meet the lowered reporting threshold.
With the 14 May 2025 deadline approaching for the expanded definition, and the lower reporting threshold in force already, timely preparation is essential to avoid breaches of UK sanctions law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
