The Monetary Authority of Singapore (“MAS”) released a consultation paper on 17 May 2021 inviting the public to comment on proposals to mandate reference checks for both representatives of financial institutions and other employees of financial institutions.

Current regime

The practice of conducting due diligence, including reference checks, is already a regulatory requirement in Singapore. MAS Circular CMI 01/2011 Due Diligence Checks and Documentation in Respect of the Appointment of Appointed, Provisional and Temporary Representatives requires due diligence checks to be conducted on all licensed representatives. This is to ensure that all representatives meet the MAS fit and proper criteria set out in the MAS Guidelines on Fit and Proper. Financial institutions are expected to conduct rigorous and independent checks on representatives which includes conducting past reference checks, probity checks, bankruptcy and litigation checks.

Financial institutions are also expected to conduct periodic due diligence checks on the representatives, in addition to obtaining self-declarations from representatives on their fit and proper status on an annual basis.

Proposed changes

In an earlier consultation paper released in July 2018, MAS had proposed to mandate reference checks for representatives of financial institutions, along with changes to misconduct reporting requirements. Representatives refers to employees licensed under the Securities and Futures Act and/or Financial Advisers Act who are appointed to conduct front-office related regulated activities such as trading, business development, customer service etc. The mandatory check 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.

Applicability

As per the Consultation Paper, MAS is proposing to extend the scope of mandatory reference checks requirements beyond representatives to other employees in the financial sector. Under the new scope, requirements will apply to the following financial institutions:

  • Banks and merchant banks
  • Finance companies
  • Credit card and charge card issuers
  • Insurers including insurance brokers and foreign insurers
  • Financial holding companies
  • Capital market services licence holders
  • Financial advisers including exempt advisers
  • Trust companies
  • Trustee of collective investment schemes
  • Exchange and recognised market operators
  • Trade repositories, clearing houses and depositories
  • Benchmark administrators
  • Operators of designated payment systems and their settlement institutions
  • Standard and major payment institutions
  • Credit bureaus

In terms of the type of employees that the mandatory reference checks would apply to, MAS is considering two options:

Option 1

  • Risk-taking functions such as relationship managers and insurance staff
  • Risk management and control functions such as compliance officers and internal auditors
  • Critical system administration
  • Payments authorisation or approval functions such as bank managers and claims managers

Option 2 is much narrower, focusing on individuals who can directly cause or result in financial risks to financial institutions or customers and that includes risk taking functions such as human resource staff and risk management and control functions such as internal audit staff.

MAS has also proposed that the mandatory reference checks are applied to hiring form overseas companies, non-financial sectors and Singapore financial institutions outside the scope of financial institutions.

Period and type of information required

In conducting reference checks, MAS expects financial institutions to evaluate the individual’s references for a period of five calendar years. MAS is not expecting financial institutions to go beyond the immediate five years when conducting reference checks even if there are gaps in the individual’s employment history.

MAS proposes to collect, at a minimum, the following information as part of the reference checks:

  • The employment history of the individual, including duration of employment, roles and job functions and reason for cessation of employment
  • Compliance information relating to individual’s fitness and propriety including any investigations or breaches of legal or regulatory in nature, disciplinary records if any
  • Last four balanced scorecard grades if applicable
  • In relation to individuals working in the insurance sector, the persistency ratio of insurance policies sold by the individual and the methodology used in computing the persistency ratio

MAS is also mandating that financial institutions should respond no later than 21 days upon request for reference checks from another financial institution.

Record keeping

MAS is proposing that financial institutions maintain records for all employees with the exception of ancillary service personnel for a minimum period of five years once the reference check requirement commences.

MAS is also proposing that the reference check regime to take effect with a six-month transitional period once the relevant MAS notice is published.

Policies and procedures

Financial institutions are required to put in place policies and procedures for conducting internal investigations and disciplinary proceedings so that individuals are able to defend themselves where any misconduct has been identified. It is important for financial institutions to document the reference check methodology that they will be adopting and the type of checks, the format in which these checks will be conducted and documented.

How can Argus Global assist?

At Argus Global, our team of consultants specialise in regulatory compliance for financial institutions. We can assist with the following:

  • Draft and incorporate reference checks requirements into current Compliance Manual
  • Assist to conduct reference checks on behalf of financial institutions
  • Provide regulatory advice on key steps to take to address and implement the necessary procedures to adhere to mandatory reference check requirements.

Please reach out to us for an initial discussion at info@argusglobal.co.

 

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