On 6 July 2018, the Monetary Authority of Singapore (MAS) issued a Consultation Paper which, among other things, proposes requirements for Financial Institutions (FIs) to conduct and respond to reference checks on representatives (Reference Check Consultation Paper). Submissions on the Reference Check Consultation Paper close on 6 August 2018.
The Reference Check Consultation Paper comes after the release of:
- MAS’ Consultation Paper on its proposed Guidelines on Individual Accountability and Conduct (26 April 2018) (see our bulletin here), which sets out MAS’ expectations for FIs to ensure senior managers’ and employees in material risk functions’ fitness and propriety and focuses on FIs’ onboarding processes, among other things; and
- the Financial Stability Board’s (FSB) Toolkit for FIs and regulators to use to strengthen governance frameworks to mitigate misconduct risk (20 April 2018) (see our bulletin here), which encourages FIs to introduce a range of measures to reduce the likelihood of hiring a “bad apple”.
With an increasing focus by the FSB on the rolling bad apples phenomenon (movement of individuals with a history of misconduct across FIs, with little or no consequences nor censure), and MAS proposing mandatory reference checks in response, we consider it likely that other regulators will take notice and eventually follow suit.
The proposed mandatory reference check requirement would also in effect increase the penalty for wrongdoers as the days would likely be numbered where a wrongdoer’s past misconduct could slip past the detection of a recruiting FI with little impact on the wrongdoer’s career.
Given the potential legal risks in providing a detailed reference, FIs would need to ensure that they exercise reasonable care when responding to a recruiting FI’s reference checks under the proposed mandatory reference check requirement.
For more information on the Reference Check Consultation Paper and the implications of the mandatory reference check requirement, please see our full briefing here.