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Restrictive Measures

Definition

Restrictive measures are legal, regulatory, or administrative actions imposed by states, supranational bodies, or competent authorities to restrict or prohibit specific activities, transactions, or relationships in order to mitigate risks to national security, financial integrity, public order, or international peace.

In the AML/CFT context, restrictive measures are primarily used to combat money laundering, terrorist financing, proliferation financing, sanctions evasion, and other forms of serious financial crime by limiting access to the financial system and economic resources.

Restrictive measures may apply to individuals, legal entities, sectors, jurisdictions, financial instruments, or specific types of transactions.

They are enforceable through binding laws, regulations, directives, or executive actions and are typically accompanied by compliance, reporting, and enforcement obligations for financial institutions and other regulated entities.

Explanation

Restrictive measures function as preventive and corrective tools within AML/CFT frameworks.

Rather than addressing criminal conduct solely after it occurs, these measures aim to disrupt illicit financial activity by increasing friction, limiting anonymity, and denying access to financial channels.

They are closely aligned with risk-based supervision and are often triggered by identified threats, typologies, geopolitical developments, or deficiencies in AML/CFT regimes.

In practice, restrictive measures may include asset freezes, transaction prohibitions, enhanced due diligence requirements, restrictions on correspondent banking, sectoral sanctions, or outright prohibitions on dealing with designated persons or jurisdictions.

Financial institutions are expected to operationalise these measures through policies, systems, controls, and governance structures that ensure timely identification, screening, blocking, reporting, and escalation.

Restrictive measures are dynamic in nature. Lists, thresholds, and scope may change frequently, requiring institutions to maintain agile compliance processes, real-time screening capabilities, and robust change-management frameworks.

Restrictive Measures in AML/CFT Frameworks

Within AML/CFT regimes, restrictive measures are closely connected to international standards, particularly those issued by the Financial Action Task Force (FATF).

FATF Recommendations explicitly require jurisdictions to implement targeted financial sanctions related to terrorism, terrorist financing, and proliferation financing, as well as countermeasures against high-risk and non-cooperative jurisdictions.

Restrictive measures operate across several AML/CFT pillars:

  • Customer due diligence and onboarding, where certain customers or relationships may be prohibited or subject to enhanced scrutiny.
  • Transaction monitoring and sanctions screening, where transactions must be blocked, rejected, or reported based on restrictive lists.
  • Correspondent banking and cross-border payments, where exposure to high-risk jurisdictions may be limited or prohibited.
  • Governance and risk assessment, where institutions must reflect restrictive measures in enterprise-wide risk frameworks.

Failure to comply with applicable restrictive measures may result in severe regulatory penalties, criminal liability, and reputational damage.

Key Types of Restrictive Measures

Targeted Financial Sanctions

Targeted financial sanctions are measures imposed on specific individuals, entities, or groups to freeze assets, prohibit financial services, and restrict economic resources.

These are commonly associated with counter-terrorism, counter-proliferation, and international sanctions regimes.

Typical elements include:

  • Asset freezing without delay.
  • Prohibition on making funds or economic resources available.
  • Restrictions on financial services, insurance, or investment activities.

Jurisdiction-Based Countermeasures

When jurisdictions are identified as having strategic AML/CFT deficiencies, regulators may impose additional controls or restrictions.

These countermeasures are designed to protect the global financial system from systemic risk.

Examples include:

  • Enhanced due diligence for transactions involving high-risk jurisdictions.
  • Restrictions or prohibitions on correspondent banking relationships.
  • Increased supervisory scrutiny and reporting requirements.

Sectoral and Activity-Based Restrictions

Certain sectors, products, or activities may be subject to restrictions due to inherent AML/CFT risks.

Examples include:

  • Limits on cash transactions or cash-intensive businesses.
  • Restrictions on anonymous accounts, bearer instruments, or unhosted wallets.
  • Controls on trade finance, virtual assets, or cross-border remittances.

Entity-Specific Regulatory Restrictions

Supervisors may impose restrictive measures directly on regulated entities that exhibit serious compliance failures.

These may include:

  • Limits on onboarding new customers.
  • Restrictions on specific business lines or products.
  • Mandatory remediation programmes or independent audits.

Common Restrictive Measures Applied by Financial Institutions

To comply with regulatory expectations, financial institutions typically implement a combination of the following controls:

  • Sanctions and watchlist screening at onboarding and transaction stages.
  • Blocking or rejecting prohibited transactions in real time.
  • Freezing accounts and assets linked to designated persons.
  • Escalation and reporting to regulators or financial intelligence units.
  • Ongoing monitoring of customers and counterparties against updated lists.

These controls must be proportionate to risk and supported by clear policies, procedures, and accountability structures.

Risk Indicators & Red Flags

The need for restrictive measures is often signalled by identifiable risk indicators, including:

  • Exposure to jurisdictions subject to international sanctions or FATF countermeasures.
  • Customers with complex ownership structures linked to high-risk regions.
  • Attempts to circumvent controls through structuring, intermediaries, or alternative payment methods.
  • Sudden changes in transaction patterns following new sanctions announcements.
  • Use of shell entities or trade arrangements to bypass sectoral restrictions.

Institutions are expected to treat such indicators as triggers for enhanced scrutiny or immediate restrictive action.

Examples of Restrictive Measures in Practice

Targeted Sanctions Enforcement

A bank identifies that a customer has been added to a UN-designated sanctions list.

The institution immediately freezes all accounts, blocks pending transactions, and reports the action to the relevant national authority in line with local laws.

High-Risk Jurisdiction Countermeasures

A financial institution limits correspondent banking exposure to a jurisdiction identified by FATF as having strategic AML/CFT deficiencies.

Enhanced due diligence is applied to existing relationships, and new relationships are prohibited until risk levels change.

Sectoral Restriction in Virtual Assets

Regulators impose additional controls on virtual asset service providers, including restrictions on privacy-enhancing technologies and mandatory transaction tracing for high-risk transfers.

Supervisory Restriction Following Compliance Failures

A regulator restricts a payment institution from onboarding new customers after identifying systemic weaknesses in transaction monitoring and sanctions screening.

Impact on Financial Institutions

Restrictive measures have wide-ranging operational and strategic impacts:

  • Increased compliance and technology costs due to enhanced screening and monitoring.
  • Reduced revenue opportunities where business lines or markets are restricted.
  • Higher operational risk due to complex implementation and frequent updates.
  • Reputational exposure if enforcement actions become public.
  • Legal and regulatory liability for breaches or delays in implementation.

Institutions must balance commercial objectives with regulatory obligations, ensuring that restrictive measures are embedded into decision-making processes.

Challenges in Implementing Restrictive Measures

Despite clear regulatory expectations, institutions face multiple challenges:

  • Frequent updates to sanctions lists and regulatory directives.
  • Inconsistent or ambiguous guidance across jurisdictions.
  • Data quality and name-matching challenges in screening systems.
  • Complex ownership and control structures that obscure designation links.
  • High false-positive rates leading to operational inefficiency.
  • Coordination challenges across global entities and subsidiaries.

Addressing these challenges requires investment in data governance, advanced analytics, and cross-functional coordination.

Regulatory Oversight & Governance Expectations

Regulators expect institutions to demonstrate strong governance over restrictive measures, including:

  • Board and senior management oversight of sanctions and restrictive measures frameworks.
  • Clearly defined roles and responsibilities across compliance, operations, and business units.
  • Documented policies aligned with applicable laws and international standards.
  • Regular risk assessments incorporating sanctions and jurisdictional exposure.
  • Independent testing, audits, and ongoing monitoring of control effectiveness.

Institutions must also demonstrate the ability to act without delay when new restrictive measures are announced.

Importance of Restrictive Measures in AML/CFT Compliance

Restrictive measures are a cornerstone of effective AML/CFT regimes.

When properly designed and implemented, they:

  • Disrupt criminal and terrorist financial networks.
  • Protect the integrity of the financial system.
  • Support international cooperation and enforcement objectives.
  • Reduce exposure to sanctions evasion and regulatory arbitrage.
  • Reinforce a culture of compliance and accountability.

As financial crime typologies evolve and geopolitical risks intensify, restrictive measures will continue to expand in scope and complexity.

Institutions must therefore maintain adaptive, intelligence-led compliance programmes capable of responding to changing requirements in real time.

Related Terms

  • Targeted Financial Sanctions
  • High-Risk Jurisdiction
  • Sanctions Screening
  • Proliferation Financing
  • Countermeasures
  • Asset Freeze

References

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