MAS to Expand Scope of Mandatory Reference Check Regime

MAS proposes to expand the scope of FIs and employees subject to the mandatory reference checking regime. FIs will have to maintain records for all employees. 

MAS (Monetary Authority of Singapore) has issued a new consultation paper seeking to expand the scope of FI employees covered under its proposed reference checking regime.

MAS proposed to introduce the regime in a 2018 consultation paper on amendments to the misconduct reporting requirements for FIs, which included a proposal to make reference checks mandatory when recruiting staff. The conclusions from the 2018 consultation have been published here.

The mandatory reference checking regime is aimed at addressing the issue of “rolling bad apples”, individuals who engage in misconduct at one firm, then move on to another firm without disclosing their earlier misconduct to the new employer.

While the practice of conducting reference checks is not new in Singapore, MAS says FIs differ in their practices and standards for conducting reference checks and responding to reference check requests. “Late, ambiguous or partial reference check responses would hinder meaningful information exchange on prospective employees,” the regulator says.

Minimum mandatory information

As such, it proposes to require FIs to perform reference checks, and respond to reference check requests, based on a set of minimum mandatory information, and within 21 calendar days.

The consultation paper sets out the mandatory information to be provided for reference checks, as follows:

  • employment history (e.g. duration, roles, job functions, reason for cessation)
  • compliance records (e.g. concluded and ongoing investigations including the extent of consumer detriment expected, legal/regulatory breaches, disciplinary actions, misconduct report filings)
  • last four balance scorecard grades
  • persistency ratio of insurance policies sold (where applicable)

“The breadth and sensitivity of the compliance records to be provided will be a concern given there will be no immunity from liability if an employee challenges the information provided,” says Natalie Curtis, a Partner at Herbert Smith Freehills. “Singapore has already seen significant damages be awarded by the courts in relation to references.”

“For comparison, under the Hong Kong regime, a standard template has been proposed which will likely limit the detail that will be provided. The HKMA has also provided further clarity to limit the types of investigations and disciplinary actions to be reported.”

MAS proposes for the lookback period to be set at five calendar years, i.e. FIs will not have to extend the lookback period to fill in gaps in employment history.

FIs will also be required to provide individuals with the right to view the references prepared, upon the individual’s request.

In addition, FIs may delay reference checks to help prospective employees maintain confidentiality in their job-seeking process until after employment has ceased with his or her current employer, if requested by the individual.

Expanded scope

The consultation paper proposes to extend the scope of the mandatory reference check requirements beyond representatives to other employees in the financial sector. Under the new scope, the requirements will apply to the following FIs:-

  • banks and merchant banks
  • credit card and charge card issuers
  • finance companies
  • insurers, including foreign insurers, and insurance brokers
  • financial holding companies
  • capital markets participants including brokers, fund managers, custodians, etc.
  • financial advisers, including those excepted from holding a licence
  • trust companies
  • trustees of collective investment schemes
  • exchanges and recognised market operators
  • trade repositories, clearinghouses and depositories
  • benchmark administrators
  • operators of designated payment systems, and their settlement institutions
  • standard and major payment institutions
  • credit bureaus

MAS is considering two options for the scope of employees where FIs also need to perform reference checks and respond to reference check requests.

Option 1 includes individuals in

  • risk-taking functions (e.g. relationship managers, traders, insurance sales staff, etc.),
  • risk management and control functions (e.g. credit risk analysts, compliance officers, internal auditors, actuarial staff, etc.)
  • critical system administration (those granted any privileged access to critical systems)
  • payments authorisation or approval functions (e.g. bank branch managers, claims managers and assessors, etc.

Option 2 is narrower, focusing on individuals who can directly cause or result in financial risks to FIs or customers, i.e. those in

  • risk-taking functions (e.g. human resources staff, loan administration staff, tax and financial reporting staff)
  • risk management and control functions (e.g. internal audit staff)

MAS proposes that reference checks also be applied for hiring from overseas companies, non-financial sectors, and Singapore Fis outside the scope of FIs – however, this should be done on a best endeavours basis, where hiring decisions are made based on other due diligence checks even if reference check information is unavailable.

Given that employees not performing the roles within scope could potentially be hired by another FI into a role that is within scope, FIs would have to maintain records for a larger population of employees, beyond those proposed to be in scope.

As such, MAS proposes that FIs maintain records for all employees, with the exception of ancillary service personnel for a minimum period of five years, once the reference check requirements take effect.

MAS proposes for the mandatory reference checking regime to take effect with a six month transitional period, once the relevant Notice is issued.

The consultation paper, available here, is open for comment until 25 Jun 2021.

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