When Sanctions Become a Market Risk: What the ACI Sanctions Conference Reveals for Securities Markets

At the end of April 2026, I attended the 20th Annual Flagship Conference on Economic Sanctions Enforcement and Compliance, hosted by the American Conference Institute (ACI) at the National Press Club in Washington, D.C. Each year, regulatory authorities, political decision-makers, and financial institutions meet to discuss the most important developments involving the implementation of sanctions, export controls, and compliance regulations. I was part of a securities industry panel that discussed gatekeepers, portfolio screening, and the growing demands involved in handling sanctioned securities.

The two-day conference confirmed how greatly the view on sanctions has changed, and how systematically their enforcement continues to evolve. In addition to the Department of the Treasury and the Office of Foreign Assets Control (OFAC), the Department of Commerce, the Department of Justice, and the Department of Defense were also represented. This underscores how closely financial sanctions, export restrictions, and national security issues are now interconnected.

Regulators from the USA as well as those from the UK and the EU conveyed a clear message: Sanctions are no longer a static compliance obligation, but an ongoing market risk.

This development is particularly apparent in capital markets and investments. Therefore, I would like to share some observations and conclusions here.

Sanctions become market risks because they can now influence trading ability, portfolio structures, operational processes, and market stability.

That was especially clear in Washington. The conference participants no longer talk about sanctions in isolation as a regulatory requirement. Instead, they discuss them in the context of risk management, market stability, and governance. When a person, a company, or a financial instrument is put on a sanctions list, it can have a direct impact on markets: Under some circumstances, positions may no longer be tradable, valued, liquidated, or treated operationally as before – even when the direct client relationship remains unchanged.

Sanctions thus have a direct impact on the operational viability and stability of markets. They also influence whether markets function transparently, predictably, and reliably even when under geopolitical pressure.

This perspective has consequences. When sanctions become a part of market mechanics, a periodic compliance approach is no longer sufficient. Instead, market participants have to continuously identify, assess, and manage risks via trading, portfolio, and infrastructure processes.

The challenge isn’t whether controls exist, rather whether risks can always be precisely identified, assessed, and understood. This bolsters transparency, stability, and trust – even under ever-changing conditions.

In securities markets, sanction risks arise not just from direct customer relationships. They can also affect market processes via instruments, intermediaries, fund structures, or portfolio exposures. This is precisely why broker-dealers, custodians, fund structures and platforms, among others, were increasingly at the center of discussion in Washington. These gatekeepers, as they are known, are stakeholders who facilitate, process, or monitor transactions, instruments or exposures in the securities market.

What is especially challenging is the fact that these risks can occur from seemingly passive functions: for example, through execution, safekeeping, clearing, portfolio management, or automated platform processes. Sanctions are regarded here not only as a legal requirement, but as a factor that directly affects market integrity and fairness.

For market participants, responsibility thus shifts. They have to increasingly understand regulatory requirements to be part of their market function, rather than merely an internal compliance task.

The handling of indirect exposures was a recurring topic on the panels and in the expert discussions. This refers to sanctions risks that do not arise from direct transactions or clearly identifiable counterparties, but ones that become apparent at instrument, fund, or index level. A fund or ETF issuer, for example, cannot themselves be on a sanctions list. However, the investment vehicle can contain exchange traded instruments that come under a sanction regime.

Especially in the case of fund-, index-, or structure-related exposures, the risk profile can change abruptly as a result, without the underlying customer relationship itself having changed. This involves not only formal ownership structures, but also circumvention schemes, intermediaries, and arrangements that can obscure beneficial control or exposure.

From my point of view, this signifies a fundamental change. Standard KYC approaches remain necessary, but aren’t sufficient on their own when risks arise at the instrument, fund, or index level. As a result, the focus shifts from isolated counterparty screening toward a deep understanding of references, structures and economic dependencies. Particularly in securities-based business models, it’s vital to understand connections and to provide transparency on dependencies across multiple levels.

This complexity influences modern capital markets structurally and also forces market infrastructures to address it in their processes.

Effective governance doesn’t merely mean documenting controls, but taking measures that are demonstrably effective within the market day to day. In many discussions, it was clear that regulators increasingly expect regular testing, clear responsibilities, and ownership by management. Isolated screening isn’t enough. Sanctions must be regarded as more than a component of supervision, risk responsibility, and escalation.

This focus also dovetails with established cornerstones of effective sanctions frameworks, including management commitment, risk assessment, internal controls, testing, and auditing.

For me, a key point is that sanctions are visibly garnering attention at the level of executive management and the board of directors. For market participants it’s thus less a matter of whether they document processes than it is that these processes function reliably under real market conditions. This requires high-quality data, clearly defined processes, and scalable automation.

For European securities markets, parallel sanction regimes increase the need for consistent data, clear prioritization, and transparent governance. Financial institutions have to assess risk via different, sometimes divergent legal frameworks.

This becomes especially difficult in cases where securities, fund structures, and indirect exposures extend across multiple jurisdictions. Financial institutions therefore have to convey a variety of regulatory requirements in a reliable overall picture.

The discussions in Washington show that even when legal differences persist, a convergence of regulatory expectations is clearly identifiable – particularly with regard to governance, transparency, and monitoring.

Following the conference, the following remains clear:

• Sanctions are developing into a persistent market risk.
• Financial sanctions, export restrictions, and matters of national security are increasingly perceived as interconnected issues.
• Indirect exposures are having a growing influence on risk profiles.
• Continuous transparency is more instrumental than periodic reviews.
• Governance and testing are becoming key management tools.
• Financial market infrastructures make a significant contribution toward ensuring stability and trust from an operational perspective.

Those who continue to treat sanctions primarily as a documentation or policy issue are underestimating their effect on market processes and risk management. Financial institutions, market infrastructures, and regulators can manage sanctions effectively if they treat them as a part of market activity – and embed them accordingly in processes, data models and governance.