Mandatory Reference Checks for Staff of Financial Institutions
On 12 December 2023, the Monetary Authority of Singapore (“MAS”) published its Response to Feedback Received on Proposals to Mandate Reference Checks. This response clarifies the upcoming requirement to conduct and assist in reference checks for staff of financial institutions.
Regulated financial institutions, including holders of a capital markets services (“CMS”) licence, specified entities exempt from holding a CMS licence, including registered fund management companies (“RFMCs”), licenced financial advisers and exempt financial advisers that service not more than 30 accredited investors on any occasion will be required to conduct reference checks on specified prospective employees. They will be required to conduct reference checks on prospective employees who are becoming senior managers or material risk personnel (as defined in the Guidelines on Individual Conduct and Accountability) carrying out a regulated activity involving the handling of funds or assets, risk-taking, risk management and control, critical system administration or any other function critical to the integrity or functioning of the financial institution as prescribed by the MAS. The MAS will provide further guidance on the qualifying positions. The financial institution must obtain reference checks regardless of the employment terms, e.g. permanent, contract, or other temporary employment relationship. Where an employee of a third-party service provider carries out a function that requires reference checks on a comparable employee of the financial institution, the financial institution should ensure that such the third-party service provider’s employee meets the financial institution’s hiring policies.
In its reference checks, the financial institution must obtain the following information:
- Information pertaining to the individual’s employment history with the financial institution, including:
- the duration of employment;
- the roles and job functions of the individual (including the last position held); and
- the reason for the cessation of employment;
- Compliance records relating to the individual’s fitness and propriety, unless there is a risk of tipping off the individual, which may compromise the integrity of investigations, including but not limited to records concerning the following:
- concluded investigations with reasonable grounds to believe that a wrongdoing has been committed and the extent of consumer detriment (where applicable) resulting from the wrongdoing;
- ongoing investigations of which the individual is aware that he/she is being investigated and the extent of consumer detriment (where applicable) resulting from the wrongdoing if substantiated;
- incidents where the financial institution has knowledge of, or reasonable grounds to believe that the individual has or may have been in breach of legal or regulatory requirements administered by the MAS or any other law while performing his or her duties or responsibilities as an employee of the financial institution, and the extent of consumer detriment (where applicable) resulting from the incident;
- disciplinary actions taken against the individual (where applicable); and
- whether misconduct reports were filed with the MAS against the individual and, if so, details on the nature of misconduct committed and the extent of consumer detriment (where applicable) resulting from the misconduct.
- last four balanced scorecard grades assigned to the individual (where applicable, i.e. of representatives of financial advisers servicing retail investors); and
- persistency ratio of insurance policies sold by the individual and the methodology used in computing the persistency ratio (where applicable and available).
The financial institution may request additional information.
The financial institution will need to conduct reference checks with employers for whom the prospective employee worked during the past five years (from the date the reference check is performed).
In addition to obtaining references from other Singaporean financial institutions, financial institutions are also expected to take reasonable steps to conduct reference checks on prospective employees from employers that are not financial institutions or financial institutions located outside Singapore. In these cases, the financial institution can calibrate its assessment to the information shared depending on its relevance. Even in the absence of a response or insufficient information in reference checks, the financial institution can still proceed with the recruitment if it has sought references and has deemed the prospective employee to be suitable for the position based on its other due diligence checks. An exemption can be made for prospective employees from related financial institutions. Where the hiring financial institution has access to records of the prospective employee, the financial institution need not conduct formal reference checks but should assess the information in the records.
The financial institution should consider any adverse information from the reference check responses in its assessment of the prospective employee and, where necessary, put in place additional supervisory safeguards.
The onus to conduct reference checks that meet regulatory requirements and expectations is with the financial institution. The financial institution may outsource reference checks to third-party service providers but remains accountable for compliance with the requirements.
Conversely, financial institutions must provide information in reference checks as explicitly listed above within 21 days of receiving a request for a reference check. References provided should be factual and fair. Information provided should be factual and objective, with sufficient information for the hiring financial institution to make an assessment of the fitness and propriety of the individual. Financial institutions are expected to establish robust internal investigation and disciplinary processes that provide fair outcomes to all investigated individuals.
The financial institution needs to provide information only on disciplinary actions that have been undertaken, not those that the financial institution has not actually undertaken. However, financial institutions are free to also provide information on disciplinary action that would have been taken had the individual not left their employ.
To ensure that financial institutions can provide the information required for reference checks, the MAS will require financial institutions to keep records of adverse information of all employees carrying out a regulated activity involving the handling of funds or assets, risk-taking, risk management and control, critical system administration or any other function critical to the integrity or functioning of the financial institution as prescribed by the MAS, regardless of employment terms. For employees with no adverse information, financial institutions will only need to maintain records of employment history.
The MAS will impose the above requirements via Notices, i.e. they will be mandatory. The MAS will consult on the draft Notices soon. A transitional period of one year will be granted to update internal processes and systems so that reference checks will consistently be conducted and the required information provided.
For any further information, please contact:
Rolf Haudenschild
Co-founder
Ingenia Consultants Pte. Ltd.