MAS Reference Checks – What Are The Proposed Changes And How Will They Affect You?

On 14 May 2021, the Monetary Authority of Singapore (MAS) released a new consultation paper on proposed changes to mandate reference checks in the financial services industry.

This document was an extension of the proposals made in their 2018 Consultation Paper on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives and builds on the feedback received from that consultation process.

The new consultation paper proposes to extend the mandatory reference check requirements beyond just applying to representatives to now apply to other employees as well.

MAS has invited comments and feedback from financial institutions and other interested parties on this new consultation paper.

Background

Reference checks provided by previous employers are used to verify information disclosed by candidates, and allow for an assessment of the character, integrity and track record of the candidate.

They help to ensure organisations are hiring suitable candidates and also protect against ‘rolling bad apples’. This bad apple theory refers to an individual who has engaged in misconduct at one institution and then moves onto another institution without disclosing earlier misconduct to the new employer/s.

Mandatory reference check requirements for the financial industry have already been introduced in jurisdictions such as the United Kingdom and Malaysia in recent years, and indeed on 3 May this year, the Hong Kong Monetary Authority released their consultation conclusions paper on the Implementation of Mandatory Reference Checking Scheme to Address the “Rolling Bad Apples” Phenomenon. You can download our key findings from their initial consultation paper.

Financial institutions in Singapore have previously been required to implement due diligence on prospective employees of an organisation, according to MAS guidelines which set out the fit and proper criteria applicable to all relevant persons. These regulations were last updated in January 2020.

Why a new MAS consultation paper?

The reasoning behind this consultation paper is due to a number of factors:

• there are employees other than those recognised as representatives whose misconduct has the potential to result in detrimental impact on a financial institution’s prudential soundness, reputation and customer interests
• there are differing standards in practices when conducting and responding to reference checks
• due to the movement of ‘bad apples’ across the financial services industry, it is believed that a collective effort and consensus is required to mitigate risk, and
• It’s important for all institutions to come to an agreement on the format of the reference check and a specified period of time within which the check should be conducted.

What are the proposed changes?

Taking into account the feedback they have received from their initial consultation paper in 2018, the MAS have proposed the following changes.

1. Increasing the scope of financial institutions covered by the requirements. The proposal is to include all banks, finance companies, insurers and more (see part 3 of the consultation paper for the full list of institutions covered).
2. Increasing the scope of reference checks to cover a broader range of employees. The proposal suggests senior managers should be included, defined as those employed in an executive capacity and are principally responsible for day-to-day management (see Annex A of the consultation paper), and also proposes two other options for the type of employees it could cover:
   1. Option 1 – all individuals in risk-taking functions, risk management and control functions, any individuals performing critical system administration, and any individual who can authorise or approve payments (excluding small payments).
   2. Option 2 – all individuals in functions that can directly cause or result in financial risks to the institution or to customers, but excluding certain roles and functions.

MAS also proposes a number of related changes to increase the consistency and to standardise reference check practices across the financial sector.

• Reference checks must cover certain mandatory information relating to the individual’s records in the past five years, based on calendar years not years of employment.
• Reference checks should include the following information: information relating to the individual’s employment history, compliance records relating to the individual’s fitness and propriety, last four balanced scorecard grades, and persistency ratio of insurance policies sold by the individual (if applicable).
• Institutions should provide the mandatory information no later than 21 calendar days from the date of receipt of a reference check request.
• Information provided in response to reference checks should be accurate, objective, clear, balanced and based on verifiable facts. To support this objective and facilitate a fair process, MAS proposes that institutions should provide the individual with the right to view the references prepared.

MAS acknowledges there are some challenges with the proposed reference checks, such as if the individual’s prior employment history was conducted overseas or in non-financial sectors. MAS suggests that reasonable steps should be taken to acquire the relevant information in order to satisfy themselves of the fitness and propriety of the prospective employee.

Due to the possibility of a whole range of employees being hired into roles that would be within the scope of reference check requirements, MAS proposes that financial institutions maintain records pertaining to all employees, except for ancillary service personnel, for a minimum of five years once the reference check requirements come into effect.

And to facilitate the provision of fair and accurate responses to reference check requests, a robust internal investigation and thorough disciplinary processes should be established to provide guidance on the actions that could be taken against employees.

Institutions will be expected to establish policies and procedures governing their investigation and disciplinary process, communicate the policies and procedures to all employees, conduct fair and objective investigations and disciplinary proceedings in a timely manner, and ensure proper documentation of the investigation and proceedings. Employees should also have the opportunity to explain or defend themselves against allegations during this process.

Summary

Financial institutions are already performing reference checks and due diligence for new hires but to varying standards and formats. Institutions have provided feedback that they often receive inadequate responses to checks hence failing to effectively prevent the ‘rolling bad apples’ phenomenon. MAS is proposing to implement mandatory reference check requirements in order to counter these issues and provide guidance to the industry.

MAS proposes to commence mandatory reference checks with a transitional period of six months after the notice/s issued under the relevant legislation is published. They will take into consideration the feedback received from this consultation paper when implementing the reference check requirements.

How Sterling RISQ can help

As the leader in global background checks and identity services, Sterling RISQ is at the forefront of legislation changes to ensure your business can hire fast and with confidence.

With the changes to Singapore’s financial institution’s reference check requirements, our advanced technology and industry-leading turnaround time will allow our clients to meet the mandated deadlines and increased need to perform reference checks on a new scope of employees within the financial services industry.

We are your partners in assisting you to comply with changes to legislation. Our ultimate aim is to assist you to obtain accurate reference checks and hire the right people for your business. Get in touch with us at info@sterlingrisq.com to discuss your needs.