On 12 June 2024, the US Office of Foreign Assets Control (OFAC) designated the NSD as a Specially Designated National, followed by the UK Office of Financial Sanctions Implementation (OFSI) adding NSD to the UK asset freeze list on 13 June 2024. The European Union had already included NSD on its asset freeze list on 3 June 2022. These sanctions collectively prohibited transactions involving Russian public company shares or other securities held through custody nominee accounts at NSD, as well as any dealings with dividends from such accounts, unless authorised by a licence or exemption.

Parallel custody system

Russia now employs a parallel custody system, transferring shares in restricted "C-type" accounts directly to local registrars of Russian joint-stock companies, side-stepping the NSD. This aims to shield Russian securities from sanctions tied to NSD’s involvement.

Impact of sanctions

• US investors: The Treasury’s OFAC mandates the freezing of Russian shares, even under the new custody system. Divestments require specific OFAC licences.
• UK & EU investors: While not immediately restricted, institutions are urged to stay updated in relation to any guidance issued by OFSI and the European Commission.

Licence expiry and freezing of shares

General licences from OFAC and OFSI that allowed divestments expired on 12 October 2024. Post-expiry, shares are frozen unless exemptions are granted. OFSI notes that Russian registrars involved may fall under sanctions due to ownership ties to designated persons, necessitating due diligence.

Institutions are advised to:

• Review ownership and control risks of Russian registrars
• Treat transferred assets as frozen if linked to sanctioned entities
• Conduct due diligence using OFSI’s consolidated sanctions list

The UK government is considering further clarifications to address uncertainties.

The updated OFSI’s FAQs can be found here.