Insights

The Monetary Authority of Singapore (MAS) is taking a proactive stance in mitigating the risks of potential misconduct within the financial industry. As part of this effort, MAS has proposed mandatory reference checks for prospective representatives and is considering extending this requirement to other employees in the industry.

In a Consultation Paper issued in July 2018, MAS outlined the requirements for financial institutions (FIs) to conduct reference checks and respond to reference check requests on their representatives. Senior managers are identified as individuals whose misconduct can negatively impact an FI’s soundness, reputation, customers’ interests, or public confidence. To prevent the movement of “rolling bad apples,” MAS is considering two options for expanding the scope of employees that FIs need to perform reference checks on.

Option 1 aligns with the proposed Harmonized and Expanded Power to issue Prohibition Orders (POs) and requires FIs to perform reference checks on individuals in risk-taking functions, risk management and control functions, critical system administration, and those who can authorize or approve payments. Option 2 is narrower and focuses only on functions that can cause or result in financial risks to FIs or customers, excluding individuals responsible for operational risk, technology risk, legal risk, regulatory risk, or reputational risk.

MAS proposes that reference checks for assessing the fitness and propriety of prospective employees in the financial sector should cover mandatory information related to the individual’s records for the past five calendar years. The lookback period is not based on years of employment but on calendar years. Employers are not required to extend the lookback period for gaps in employment history. If an individual requests confidentiality of the job-seeking process from their current employer, reference checks can be conducted after their employment has ceased.

The mandatory information to be provided for reference checks by FIs includes employment history, compliance record, balanced scorecard rating, and persistency ratio of insurance policies. FIs must provide the mandatory information specified within 21 calendar days of receiving a reference check request. The individual should be given the right to view the references prepared, and FIs should make arrangements to allow individuals to make requests and share the references prepared.

FIs may face difficulties when performing reference checks on prospective employees who are from companies outside Singapore, non-financial sectors, or FIs outside the scope of FIs described in this initiative’s scope. MAS expects FIs to take reasonable steps to request relevant information and satisfy themselves of the fitness and propriety of the prospective employees. If an FI has requested for reference checks and deemed the prospective employee suitable for the position based on other due diligence checks, it can proceed with recruitment despite the absence of a response to the reference check requests or reference checks containing insufficient information.

In conclusion, the proposal for mandatory reference checks is intended to ensure consistency and meaningful information exchange in the financial industry in Singapore. It is aligned with the international focus on preventing the movement of bad apples as outlined in the toolkit published by the Financial Stability Board Working Group on Governance Frameworks.

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