One client can become a source of sanctions risk for a bank

Kyrgyz banks are strengthening sanctions control, balancing the requirements of foreign regulators and business interests. This was stated by Takhmina Turdieva, head of compliance control at Demir Bank CJSC, at a round table discussion entitled ‘Strengthening business sustainability through regulatory compliance and responsible management.’

According to her, since the beginning of 2022, financial organisations have been forced to independently build sanction risk management systems in the absence of uniform official explanations and high responsibility to foreign partners.

Turdieva noted that bank customers are increasingly demonstrating a willingness to engage in more transparent interaction. They provide explanations of their activities, confirm the origin of funds, and sign internal commitments not to participate in the supply of goods to third countries. In her opinion, this indicates a growing understanding that compliance with sanctions requirements has become an integral part of banking services.

At the same time, requirements for compliance with foreign legislation are only partially enshrined in national regulations.

"As a result, commercial banks are forced to develop their own sanction control models, guided by practice, open sources and recommendations from international organisations. We received training support in this area from European Union structures and the US Embassy in Kyrgyzstan," said Turdieva.

Secondary sanctions remain a key risk for banks. According to the expert, a high concentration of reputational risks can transform into direct restrictions on international settlements. This forces financial institutions to act with increased caution and, in some cases, resort to derisking — the application of enhanced control measures even to formally low-risk clients.

The situation is complicated by the lack of direct correspondent relationships with foreign banks. Most transactions in dollars and euros go through a chain of correspondents, each of which has its own requirements for compliance with the laws of its jurisdiction. These requirements are regularly updated and are becoming more stringent.

Additional tension persists within banks between business units and control services.

‘The former are focused on growing the customer base and turnover, while the latter are focused on compliance with risk appetite and sanctions restrictions. At the same time, there are very few compliance specialists with practical experience in the market, and the workload and level of responsibility continue to grow,’ Turdieva noted.

Against this backdrop, online sanctions monitoring is becoming one of the most vulnerable but critically important elements of the banking system. As the expert emphasised, a mistake by one customer can jeopardise the bank's settlement relations with foreign partners.