What the Latest MAS Reference Check Proposal Means for Financial Industries in Singapore

July 8, 2021 | Antique Nguyen

Following the release of Hong Kong’s mandatory reference check consultation paper, The Monetary Authority of Singapore (MAS) has similarly published an updated mandatory reference check proposal for financial institutions (FIs) and employees. The two main features of the proposal include that reference checks will be made mandatory upon recruitment, and that FIs must maintain misconduct records of all their employees. It is set to take effect within a six-month transitional period upon the relevant Notice being issued by MAS. Mandatory conditions to retain all misconduct records in a firm aim to address the issue of “rolling bad apples” in Asia Pacific, where employees engage in misconduct at one firm and then move to another firm without disclosing history of misconduct to their new employer(s).

Although conducting reference checks and screening is common in Singapore, the objective behind making reference checks mandatory is to standardize industry practice within the finance sector. This is due to differences in how FIs conduct reference checks and respond to reference check requests (e.g., the level of details provided, and response time taken when handling reference requests). As quoted in the latest MAS consultation paper, the key objective of the regime is to combat “late, ambiguous, or partial reference check responses which often hinder meaningful information exchange on prospective employees.” MAS additionally proposes that FIs will need to respond to reference requests no later than 21 calendar days of the receipt of the request (*updated since the initial 14-day response requirement).

Now that gaining timely references will be made mandatory, reference checks will no longer be delayed or omitted by a FI when hiring or when responding to reference requests. This rule would benefit hiring managers significantly through enabling increased efficiency when retrieving references. On a wider scale, specified requirements in the proposal will likely impact finance professionals and the institutions that employ them as well.

As a result, here are a few significant points to consider.


Mandatory Reference Check Requirements

FIs will need to provide a set of mandatory information about their former/current employee at minimum, including:

    • employment history (e.g., previous roles, job functions, employment duration);
    • compliance records (e.g., legal/regulatory breaches, misconduct report filings);
    • last four balance scorecard grades within the last 10 years; and
    • persistency ratio of insurance policies sold (where applicable).


Additional notes

    • The lookback period for reference checks will be set at five years, meaning that FIs need not extend the lookback period to fill in employment history gaps. FIs who wish to maintain the current 10-year lookback period can still voluntarily choose to do so.
    • Upon request, FIs must provide individuals with the right to view the references prepared for them, and will be allowed to delay reference checks to help prospective employees maintain job-seeking confidentiality until after ceasing employment with his/her current employer.
    • The inability to obtain references from a candidate’s current or past employers within the 21-day timeline, or retrieving an incomplete reference, will require FIs to assess their candidate’s fitness and propriety by conducting due diligence and considering other available information. However, any subsequent reference(s) that may be provided within a five-year timeline of employment must still be considered in order to assess the fitness and propriety (e.g., honesty, and competence) of an individual.
    • Records of all employees (excluding those in ancillary functions, such as drivers, etc.) must be kept for a minimum period of five years.
    • The requirements set out above additionally apply to hiring candidates from overseas companies, non-financial sectors, and other Singapore FIs on a best effort basis; where hiring decisions are made based on other due diligence checks.


Extension of FIs Subject to the Regime

Previously, the regime only applied to representatives of FIs (defined under section 99D of The Securities and Futures Act). In recognition of how FIs and other employees (that are not representatives) may also commit forms of misconduct or impact the prudential soundness, reputation, customer’s interests or the public’s confidence in a firm, MAS has extended its requirements to a broader segment of the financial industry, including all FIs and entities regulated by the MAS, such as banks, merchant banks, persons regulated under the Payment Services Act, and others.


Extended Scope of Employees Subject to the Regime

Employees such as senior managers and those involved in specified key functions will also be subject to the scheme.

Apart from senior managers, two options regarding the type of employees that will have to undergo mandatory reference checks are being considered by MAS:

Option 1 applies to individuals performing any of the following functions within an FI:

    1. risk-taking functions;
    2. risk management and control functions;
    3. performing critical system administration; and
    4. authorization or approval of payments (excluding small payments).


Option 2 will only apply to individuals whose functions within an FI could result in the FI or customers facing direct financial risks. This means that those with risk roles, which cover only operational risks, technology risks, legal, and regulatory risks (e.g., HR staff) need not undergo reference check requirements—nor would it apply to individuals engaged in compliance roles.

The Reference Checks Consultation closes on June 25, 2021. FIs that fall under the MAS requirements should begin reviewing their existing internal systems in anticipation of how they may soon need to adopt specified mandatory procedures. Organizations should also consider practical challenges such as maintaining records of all their employees for a minimum of five years.

If you need expert assistance on how your firm can remain compliant with changing regulations and conduct effective background checks, speak to Cisive today.

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