Sanctions fragmentation, friction and the future of KYA

How diverging sanctions regimes are reshaping asset-level compliance

Robin Cotterill, Chief Compliance Officer

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Sanctions – just one piece of the Know Your Asset puzzle – are no longer operating as a coordinated global framework. They are fragmenting – subtly in some areas, materially in others – and that shift is reshaping how asset managers think about risk, compliance and operating model design. 

For firms with multi-jurisdictional exposure, the issue is no longer simply keeping pace with regulatory change. It’s managing inconsistency. Diverging priorities across the US, EU and UK are creating points of tension where compliance is no longer a matter of alignment, but of interpretation and trade-off. 

At the same time, many firms are attempting to manage this growing complexity with operating models that remain heavily manual. That combination – fragmentation on one side, operational constraints on the other – is where pressure is building. 

Divergence is no longer an edge-case risk 

The assumption of broad alignment between major sanctions regimes no longer holds in practice. US, EU and UK sanctions regimes are evolving with different priorities and enforcement styles. 

In the US, political appetites are broadening jurisdiction (bringing any transactions involving US dollars now within the ‘US nexus’), and enforcement is increasingly assertive. European and UK regimes, meanwhile, are broadly aligned but evolving with different emphases – but in some cases, more comprehensive lists or a different sectoral focus. 

For global managers, screening against a single ‘gold standard’ is no longer sufficient if exposures sit across regimes that are diverging in real time. The operational question becomes less about compliance with one framework and more about reconciling several – each with its own triggers, expectations and enforcement posture. 

That complexity is compounded by the pace of change. Sanctions lists are dynamic by design. The issue is no longer identifying risk at onboarding, but maintaining an accurate, continuously updated view of exposure across jurisdictions. And compliance has become an exercise in interpretation, not alignment. 

 Asset-level exposure is where divergence crystallises 

The impact of sanctions fragmentation is most acute at the asset level. Indirect exposure, layered ownership structures and intermediaries, and cross-border operational dependencies mean that risk often sits several steps removed from the immediate counterparty. In a converged regulatory environment, that complexity was already challenging. In a fragmented one, it becomes materially harder to interpret. 

An asset that screens clean under one regime may present issues under another. A structure that appears low risk at the surface can become problematic once beneficial ownership is assessed against multiple lists with different thresholds. At the same time, the margin for error is narrowing, as regulators continue to focus on indirect exposure and facilitation risk. 

For many firms, this is where the limitations of legacy approaches are becoming most obvious. Static due diligence and periodic review cycles are increasingly out of step with a risk landscape that is fluid and jurisdictionally complex. 

Enforcement is reinforcing expectations 

In recent enforcement action, we can see a handful of clear themes. There is a clear emphasis on ongoing monitoring rather than point-in-time assessment (not just onboarding checks), and on the need to interrogate structures rather than rely on formal ownership alone. And the concept of ‘wilful blindness’ continues to expand in practical terms, with regulators focusing on whether firms have asked the right questions – not just whether they have followed defined processes. 

In parallel, the perimeter of enforcement has widened. Private markets are no longer peripheral to sanctions risk – they are central to it. The concern, particularly in the US, is not just financial exposure but access – to capital, to infrastructure and to technology – as a matter of national security. 

Expectations are increasing in a way that places greater weight on judgement, interpretation and the ability to evidence decision-making across complex scenarios. 

The automation gap only compounds challenges 

Against the backdrop of rising sanctions complexity, persistent manual processes are becoming harder to ignore. Our research reveals that 43% of managers say that more than half of their KYA and AML compliance processes remain manual – despite the rise of AI and digital transformation more broadly to support other areas of asset management. 

Meanwhile, sanctions lists are expanding rapidly, updates are frequent or in near real time, and screening is required across multiple jurisdictions simultaneously. It’s no wonder that manual models struggle with scale, speed and consistency in processing the sheer amount of complex data required. 

Technology is part of the answer, but not in isolation. The challenge is not just implementing systems, but calibrating them effectively – balancing sensitivity with precision and ensuring that outputs are both usable and defensible. 

The gap, therefore, is not simply between manual and automated processing. It’s between operating models designed for a more stable environment and the demands of one that is anything but. 

Reducing friction in operating models 

While the pressure on operating models is real – driven by increasing complexity, constrained resources and the need for speed in deal flow – it is also prompting a more fundamental rethink of how KYA, including sanctions screening, is delivered. For many managers, this is about more than managing cost or avoiding risk. It’s about enabling more efficient, scalable and ultimately more competitive ways of operating. 

Done well, KYA can reduce friction rather than create it. Embedding asset-level due diligence earlier in the deal lifecycle can prevent late-stage surprises and keep transactions moving. More integrated data and monitoring frameworks can reduce duplication and rework. And consistent, scalable processes can allow firms to manage larger volumes of activity without a proportional increase in cost. 

As firms expand across jurisdictions and asset classes, the ability to assess risk quickly and consistently becomes a competitive differentiator. Operating models that can support that – combining access to the right technology, data and specialist expertise – are increasingly acting as enablers of deal flow rather than hurdles to it. 

There is also a growing recognition that scale matters. Building and maintaining multi-jurisdictional KYA capabilities in-house can be resource-intensive and difficult to sustain, particularly as regulatory expectations continue to evolve. Models that leverage outsourced, third-party infrastructure, integrated data and specialist expertise are enabling firms to adopt a more proactive stance in managing risk as it evolves over time, enabling truly continuous monitoring. 

From alignment to navigation 

Compliance is moving from a model based on alignment – where the objective was to meet a broadly consistent set of expectations – to one based on navigation, where firms must interpret and reconcile sanctions divergence in real time. 

That places a premium on flexibility, on data, and on the ability to scale processes without losing control. 

For fund managers, the challenge is about more than compliance execution. It’s one of design: how to build operating models that can absorb ongoing fragmentation without becoming inefficient or overly complex. 

The firms that solve that problem will not only be better positioned from a risk perspective. They will be better positioned to operate – consistently and confidently – across an increasingly uneven regulatory landscape. 

Hear more from fund managers and institutional investors on their approaches to sanctions screening and KYA – and how our anti-financial crime experts see the function evolving – in our latest report. Download our Know Your Assets report.