Experts weigh in on proposed mandatory reference checks for financial institutions

The policy aims to mitigate the risk of “rolling bad apples.”

Financial institutions in Singapore will likely experience significant changes to their hiring processes and employment policies should the proposed mandatory reference checks take effect, according to Linklaters.

In a recent note, partners at the law firm weighed in on the proposed policy requiring financial institutions to do mandatory reference checks on prospective senior managers and material risk personnel as part of their hiring process.

The comments were made in response to the final requirements by the Monetary Authority of Singapore on the policy aimed at mitigating the risk of “rolling bad apples,” or those who move freely between companies without disclosing their history of misconduct to new employers. 

The new policy will affect banks, capital markets services license holders, financial advisers, recognised market operators as well as payment institutions.

Prospective employees who will subjected to these checks include those involved in handling funds or assets, risk-taking, risk management and control, critical system administration, as well as other prescribed critical functions.

“The implementation of the requirements could require significant and costly operational changes and additional human resources,” partners at Linklaters said. “Current employers will also need to ensure that they maintain data on ex-employees and that they are in a position to respond to reference check requests.”

Companies also have to review their personal data and confidentiality policies to ensure that responding to these checks will not violate any privacy or confidentiality laws, they added.

“This (policy) puts Singapore’s regulatory regime abreast with developments in other major jurisdictions such as the United Kingdom and Hong Kong, which have introduced similar requirements in recent years,” the partners noted.