Bad apples don’t just roll within the banking industry – time to tighten up background checks and employment documents!

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Authored by: Elsie Chan

Under its letter dated 5 May 2022, the Hong Kong Monetary Authority (HKMA) confirmed its endorsement of the Mandatory Reference Checking Scheme (MRC Scheme) issued by the Hong Kong Association of Banks and the DTC Association.

The MRC Scheme aims to facilitate the background check process, especially with respect to the employment history of candidates applying to take up regulated roles in authorised institutions under the supervision of the HKMA (AIs), in order to avoid “rolling bad apples” phenomenon in the banking industry.

In short, under the MRC Scheme, AIs recruiting for certain positions will be required to approach the former and current AI employer(s) of the candidate to request conduct-related information covering the 7 years prior to the candidate’s application for such position. Misconduct information to be reported by AIs which are the current or former employers of the candidate includes (i) breach of legal or regulatory requirements; (ii) incidents which cast doubt on an individual’s honesty and integrity; (iii) misconduct reports filed with the HKMA; (iv) any internal or external disciplinary actions arising from conduct matters; and (v) ongoing internal investigations. AIs should respond within 1 month of the MRC request.

The MRC Scheme will be implemented in 2 phases, aiming to cover different positions:-

Phase 1

• directors, chief executives and alternate chief executives approved under section 71 of the Banking Ordinance (BO);

• managers notified to the HKMA under section 72B of the BO;

• executive officers approved under section 71C of the BO; and

• responsible officers approved under the Mandatory Provident Fund Schemes Ordinance and the Insurance Ordinance.

Phase 2

• All personnel already covered in Phase 1

• Staff licensed to carry out securities-related regulated activities under the Securities and Futures Ordinance

• Staff licensed to carry out insurance-related regulated activities under the Insurance Ordinance

• Staff registered to carry out regulated activities under the Mandatory Provident Fund Schemes Ordinance

All Als are requested to put in place necessary internal controls, policies and procedures to deal with the implementation of Phase 1 of the MRC Scheme by 2 May 2023. Those internal policies may cover:-

1. At what stage will the AI seek candidates’ consent to release their information from their former or current employer for background check purposes?
   
   
2. When will the employment offer be granted (before or after background check results are received
   
   
3. What if the information from the previous/current employers of the candidates contain negative information?
   
   
4. If negative information is received during the background check process, what are the factors to be considered in determining whether to grant the employment offer to the candidate or to proceed with the employment (in the event that the offer has already been granted)?
   
   
5. Any mechanism to keep records of the grounds of the employment decision in case the HKMA makes enquiries?

In view of the above, AIs may wish to revise their employment documents. For example, if it is not feasible to grant the employment offer to a candidate or for a candidate to commence employment after the MRC process is duly completed, in order to protect themselves, AIs may wish to make the employment offer subject to certain condition precedents, or request a candidate to make certain undertakings failing which the AIs are entitled to end the employment relationship immediately.

In fact, for employing entities which are not AIs, to safeguard the professional qualities of their employees, they should also tighten up their employment documents to cater for the possibility of unsatisfactory background check results.

If you need any assistance regarding compliance with the MRC Scheme or better protection for your company in the event of unfavourable background check results, please do contact us. 

Key Contacts

Elsie Chan

Partner | Employment and Pensions

Email or call +852 2825 9604