Sanctions screening in capital markets has traditionally been treated as a specialist compliance concern: one for legal teams, sanctions officers and financial crime specialists to manage through lists, policies and escalation procedures. That view is becoming increasingly difficult to sustain in capital markets, where sanctions exposure can be hidden inside the securities, funds and structured products within investment portfolios.
That complexity was central to the securities industry panel at the ACI’s 20th Annual Flagship Conference on Economic Sanctions Enforcement and Compliance in Washington, D.C. The panel focused on gatekeepers, portfolio screening, lessons from recent enforcement actions and the practical difficulties of liquidating funds that include sanctioned securities.RegTech Insight caught up with Oliver Bodmer, Product Management Director, Financial Information at SIX to discuss his take-aways from the ACI event and how SIX’s Sanctioned Securities Monitoring Service (SSMS) is helping firms meet the challenge. “For years, sanctions compliance in financial markets was focused on clients, names and payments,” he says. “The securities industry was much less developed, even though the volumes and complexity were significant.”
Since 2024, the US Office of Foreign Assets Control (OFAC) has settled actions involving securities transactions at EFG International, brokerage and investment services at Interactive Brokers, and 481 apparent violations at TradeStation Securities. Securities activity is no longer peripheral to sanctions supervision. “For a long time, there were no enforcement actions focused on the securities industry,” Bodmer says. “Now we have seen those fines, and regulators are looking much more closely at the securities industry.”SIX began building sanctioned securities capability during the 2014 Crimea crisis, when restrictions on Russian banks and new financing forced firms to connect sanctions obligations to instruments, issuers and ownership structures. “When Crimea sanctions hit in 2014, it was the first time we saw regulation effectively tackling the financial market at the instrument level,” Bodmer notes.
The difference between name screening and securities screening is significant. A customer may be clean. A broker may be clean. A fund manager may be clean. But the security, issuer, underlying asset or beneficial owner inside a product may still create exposure.
OFAC’s 50 Percent Rule reinforces the need to look beyond listed names. Under the rule, an entity is treated as blocked if one or more blocked persons own, directly or indirectly, 50% or more in the aggregate of that entity, even if the entity itself does not appear on the Specially Designated Nationals list. That makes sanctions screening a look-through exercise: firms need to understand issuer ownership, parent/subsidiary chains and aggregated sanctioned-party interests, not just match securities or counterparties against a list.
OFAC also distinguishes ownership from control: control alone does not automatically trigger the 50 Percent Rule, although OFAC urges caution where a blocked person has significant minority ownership or other influence.
Exchange-traded funds illustrate the challenge. An ETF may not itself be sanctioned, but it may hold an underlying security affected by a sanctioned regime, person or entity. “An ETF may not itself be sanctioned, but it can still contain exposure to a sanctioned security,” Bodmer says. “That is the practical challenge for global institutions.”
The problem is intensified by jurisdictional divergence. The same exposure may have different consequences depending on the sanctions regime, investor domicile, trading venue or internal policy. “The same exposure can have different implications depending on the applicable sanctions regime, the domicile of the investor and the market in which the product is traded,” he says. “That is why firms need exposure intelligence, not only a binary flag.”
That distinction is central to SSMS. Bodmer is careful not to present it as a legal determination engine. “We do not have a sanctions list,” he says. “We have a service that shows the exposure.” The client then applies its own risk-based approach.
According to SIX material, the service screens 97% of ETFs worldwide, more than 200,000 funds and 30 million instruments, combining three-level look-through with beneficial ownership data, daily updates, transparency on why an instrument is flagged, and an audit trail. Bodmer says the requirement reflects how products are built. “You can have a top-level ETF holding another ETF, which holds another ETF, and the sanctioned exposure is at the lower level.”
The same logic applies to structured products and options. A product may be issued by a non-sanctioned institution but reference a sanctioned underlying or contain settlement terms that create exposure to restricted instruments.
The broader lesson is that sanctions are becoming part of market-risk governance. Firms need instrument-level exposure data, transparent rules, accountability and evidence that controls work.
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