Five banks named by Boris Johnson earlier today only have a small footprint in the UK, although the largest one Promsvyazbank did have ambitions to float on the London Stock Exchange a decade ago.
The sanctions imposed on the five banks and three Russian businessmen are unlikely to have a significant effect on British businesses or the economy.
They are already under sanctions in the US since before today’s announcement.
But global sanctions and stricter ones being threatened by the Prime Minister could have a greater impact, analysts have said.
Gennady Timchenko, Boris Rotenberg and Igor Rotenberg are also on the sanctions list, meaning they are unable to travel to the UK or have assets based in the country.
But as the three have been on a US sanctions list since 2018, it is unlikely many UK businesses have dealings with them to avoid facing problems with any US interests.
On the banks, after the new sanctions announced no UK business or individual can have dealings with the institutions, whether it be borrowing money, seeking advice or using their services for any transactions.
UK businesses are also said to be seeking advice on how best to avoid breaking any of the sanctions should their supply chain use those banks or have dealings with Russia that could form part of future sanctions.
Law firm Brown Rudnick said they have seen an increase in requests from companies keen to ensure they do not fall foul of the rules.
Jeffrey W Cottle, a partner at the firm, said: “It was a muted response from the Prime Minister to see what Russia’s reaction will be and it is an attempt to de-escalate the situation, which is what we are all hoping for.
“It’s a global game of chess, for which we are awaiting next moves.”Jeffrey W Cottle
“All transactions have to be processed by a bank, so even if a transaction is permissible, companies may not be able to get paid for goods and services that they export to Russia because banks are inherently conservative when managing their risk on these issues – for which you can’t blame them, given the penalties they’ve paid.
“The industries most likely to be affected include energy, defence and financial services. However, even companies without direct links to Russia are taking a closer look at their supply chains, customers and banking relationships.”
He said companies in the UK should watch the US sanctions closely because they will likely be stronger than those announced by the British Government.
US rules mean that breaches can occur in any country that deals with an entity on the sanctions list if they have so much as an office cubicle in the US or complete a transaction in US dollars.
Several Russian banks are already under sanctions in the US, so some businesses will already be well aware of what rules they must stick to.
But with matters changing rapidly, that could change and ignorance is no excuse for law authorities, who could impose fines or criminal proceedings.
Labour leader Keir Starmer called for sanctions to go further, including a ban on trading in Russia’s sovereign debt and banning the country from access to the international bank transfer system, Swift.
According to the UK Government, trade between the UK and Russia was £11.2bn in 2020.
Last year, imports from Russia were worth £11.6bn – an increase of 43.6 per cent on the previous year – and the UK exported goods worth £4.3bn to Russia.
The London Stock Exchange took the changes in its stride and has remained up on the day, although some analysts warn banking stocks could come under pressure.
Steve Clayton, a fund manager at Hargreaves Lansdown, said: “Effective sanctions will impact on economic activity and banks will be where it is felt in the West.
“Lending volumes would be hit too, if tensions really rocket, because cautious consumers and businesses will refrain from borrowing until they feel more confident.”