The EU Guidance Note discusses the challenges of implementing asset freezing measures in the context of EU Regulation 269/2014 when dealing with entities owned or controlled by designated persons which are subject to an asset freeze. To address potential negative impacts on EU operators and the internal market, the European Commission proposes the use of "firewalls" or safeguards.

Typically, the asset freeze applicable in relation to designated persons extends to any non-designated entities which they own or control.

In turn, firewalls aim to prevent designated persons from exercising control rights connected to ownership of effective control over the non-designated entities, allowing business operations to continue while keeping the designated person's funds and economic resources frozen.

The EU Guidance Note aims to enhance the uniform application of EU restrictive measures and provide guidance to Member States on implementing and recognising firewalls.

Furthermore, it provides criteria for Member States' national competent authorities and outlines the practical implementation of firewalls, whether through:

• Firewalls by legislation (through the imposition of a temporary administrator or supervisor); or
• Firewalls by operators (through the implementation of safeguards to decouple the entity from the designated person, including external auditing).

The EU Guidance Note also recognises the importance of the exchange of information regarding cross border situations and, in turn, the engagement of Member States.

Importantly, the EU Guidance Note encourages recognition of firewalls across Member States, but acknowledges that it is up to the competent authorities of each Member State to determine the recognition of firewalls.

EU Guidance Note also discusses certain criteria for:

• the appointment of third parties in legislation-based firewalls; and
• the use of external audits in operator-initiated firewalls, aiming to maintain independence and compliance with EU sanctions.

As such, the EU Guidance Note points out the temporary nature of firewalls and the need for regular audits to ensure ongoing compliance with EU measures.

The objectives of firewalls are outlined to protect entities crucial to the EU economy from adverse effects. The subsequent sections of the article offer detailed guidance on the structure of firewalls and the conditions for their recognition, promoting a homogeneous implementation across Member States.

The guidance can be found here.