Under the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2024, enacted on 5 December 2024, the UK government introduced amendments across the statutory instruments that implement the UK's various sanctions regimes – e.g. Russia, Iran, Global Human Rights – to implement changes including:

• the application to UK insolvency practitioners of mandatory sanctions-related reporting requirements from 14 May 2025; and
• a new insolvency-related licensing ground, available from 5 December 2024, on which the Office of Financial Sanctions Implementation (OFSI) is able to issue licences to authorise a wide range of activities related to insolvency and restructuring proceedings, and certain wider special administration-type proceedings, that would otherwise be prohibited under UK sanctions.

Note that some requirements differ according to the relevant sanctions legislation (for example, the Russia regime contains further requirements to those summarised below) and whether a sanctions restriction was imposed unilaterally by the UK, or is derived from a resolution of the UN Security Council. In this update, we provide a general summary of the key changes for insolvency practitioners across the UK's various sanctions regimes.

New sanctions reporting requirements

Who is subject to the reporting requirements?

Insolvency practitioners have been added to the professions and business activities that are subject to the reporting requirements, termed "relevant firms". Currently, these include banks, accountancy and legal services providers, crypto exchanges and estate agents.

What do the reporting requirements entail?

From 14 May 2025, an insolvency practitioner will be required to report to OFSI if it "knows or has reasonable cause to suspect" that:

• a person is a "designated person" (i.e. a UK asset freezing target, such as a customer); or
• a person has breached certain provisions within one or more of the UK's sanctions regimes (for example, transacting with a "designated person" under the UK's Russia (Sanctions) (EU Exit) Regulations 2019); and
• the information that caused the insolvency practitioner to form such knowledge or suspicion came to it in the course of its business.

Where a "designated person" reported to OFSI is a customer, insolvency practitioners are also required to report any frozen assets of the "designated person" that they hold.

In its recent Guidance for Insolvency Practitioners, OFSI clarified that an insolvency practitioner need not report if such information came to them whilst carrying out other business, such as acting as a receiver, or when undertaking an independent business review. However, we recommend that insolvency practitioners act with caution and seek expert advice before concluding that they need not report to OFSI.

Reports must be submitted to OFSI using its Compliance Reporting Form, found here. Failure to comply with the reporting requirements constitutes a criminal offence and risks regulatory enforcement action.

What steps should insolvency practitioners take to ensure compliance?

The new requirements do not include a legal requirement to conduct sanctions-related due diligence such as screening customers and counterparties against the UK sanctions list. However, OFSI has made clear that a party cannot avoid being considered to have the "knowledge" or "suspicion" that triggers the reporting requirement, by omitting to undertake due diligence proportionate to the degree of sanctions-related risk that a counterparty or transaction presents. Therefore, insolvency practitioners should ensure that their sanctions compliance policies and procedures:

• require adequate and proportionate due diligence measures before engaging in transactions, which may be calibrated to the risk profile of the counterparty or jurisdiction involved;
• are updated to include procedures and guidance for identifying and reporting "designated persons" and suspected sanctions breaches; and
• are implemented effectively (e.g. via training), so that relevant employees are able to identify sanctions compliance red flags and report them to their legal and compliance functions.

New insolvency-related licensing ground

The new licensing ground enables OFSI to grant a licence to allow certain transactions (e.g. payments) or other activity to be undertaken that otherwise would be prohibited under UK financial sanctions measures, such as asset freezes. It is broad in scope "to enable anything to be done in connection with" the following:

• any "insolvency and restructuring proceedings" relating to an insolvent entity, defined to include a number of regimes and proceedings in the Insolvency Act 1986, the Companies Act 2006 and the Bankruptcy (Scotland) Act 2016;
• any "other relevant proceedings" relating to an entity, defined to include a number of further regimes and proceedings, including various special administration regimes; and
• corresponding proceedings under the insolvency laws of countries other than the UK that correspond to either of the above.

However, any payment made directly or indirectly to a "designated person" must be credited to a frozen bank account held at a UK-regulated financial institution, as is already permitted in certain circumstances under existing UK sanctions regulations.

A licence can be obtained under the new grounds to enable a number of transactions and activities, such as receiving funds from a debtor or insolvent company that is a "designated person", and dealing with their funds and assets (including their sale) in the context of insolvency or special administration-type proceedings.

How will these changes impact insolvency practitioners?

Many insolvency practitioners and their firms will already have robust procedures in place for the making of reports to OFSI on a voluntary basis in appropriate circumstances. However, the reporting is now obligatory and there are specific circumstances in which insolvency practitioners and their firms must make a report to OFSI. It will therefore be important to ensure that there are clear procedures and policies in place covering the points we have noted above, and that everyone is aware of the new obligation along with the process which has been put in place to make sure that this is complied with. As a result, the reporting obligation on insolvency practitioners and their firms may increase.

The new licensing ground should be of practical assistance to insolvency practitioners where they are dealing with "designated persons" and/or their frozen assets, enabling them to progress/complete insolvency processes, including by permitting distributions from, or other dealings with, funds or assets that otherwise would remain frozen. This will not only benefit insolvency practitioners who may otherwise have to keep insolvency processes open for a considerable period while sanctions-related matters are dealt with, but also creditors, who should now be able to receive their distributions from an insolvent estate more quickly than has previously been the case. Importantly, this would include a sanctioned company which has entered special administration – as a number of Russian banks have to date. Again, hopefully this will improve the options available to insolvency practitioners to progress such a special administration, such as by streamlining the process which insolvency practitioners will need to go through from a sanctions perspective to sell the sanctioned company's assets.

The High Court has also recently looked to the new licensing ground as support for the position that the appointment of administrators over a potentially sanctioned entity is not, in principle, in breach of sanctions (Re KRF Services (UK) Ltd [2024] EWHC 2978 (Ch)). It may therefore also provide comfort to the Court in this regard and make the process for appointing insolvency practitioners over a sanctioned/potentially sanctioned entity slightly simpler.