On May 14, 2021, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on Proposals to Mandate Reference Checks (Consultation Paper). In the Consultation Paper, the MAS proposes to introduce mandatory reference check requirements (Proposed Requirements) on financial institutions, including licensed and/or registered fund management companies (FMCs), in relation to their prospective hires.
The Consultation Paper is an extension of the MAS’s proposal in July 2018 requiring financial institutions to conduct reference checks in relation to prospective representatives . The rationale for this extension arises from the inherent potential which the conduct of other employees, apart from representatives, has to create detrimental impact on customers’ interests or on a financial institution’s prudential soundness and reputation or even affect public confidence and trust in the financial industry. The MAS is looking to introduce the Proposed Requirements to stem “rolling bad apples,” referring to individuals who engage in misconduct in one firm, then move on to another firm without disclosing the earlier misconduct to the new employer.
Note that the practice of conducting reference checks is not new in Singapore. However, the MAS has observed differing standards across financial institutions’ practices when conducting and responding to reference check requests. In this connection, the MAS recognizes the need for, and hence is introducing, a mandatory minimum standard for such reference checks.
The details of the Proposed Requirements are summarized below. This briefing focuses on the Proposed Requirements insofar as they are applicable to FMCs.
|1.||Scope of Prescribed Employees||
(b) individuals in risk management and control functions: These are individuals who are responsible for
(i) the identification, assessment, monitoring and reporting of specified risks arising from the FMC’s operations; (ii) the development and implementation of policies and procedures intended to ensure compliance by the FMC with the relevant legal and regulatory requirements in the jurisdictions that it conducts business in; or (iii) the monitoring of, auditing of and/ or reporting on compliance with policies and procedures intended to ensure compliance by the FMC with the relevant legal and regulatory requirements in the jurisdictions that it conducts business in.
(c) individuals performing critical system administration: Critical system administration refers to the maintenance or operation of a critical system by persons granted any privileged access to the critical systems. (d) individuals who can authorize or approve payments (excluding small payments): These are individuals with mandate to authorize or approve the release of funds to facilitate payments by the FMC, regardless of the counterparty to which the payment is made.
(a) with respect to individuals in risk-taking functions (as described under paragraph under Option 1 above), individuals responsible for taking actions that result in an FMC undertaking operational risk, technology risk, legal risk, regulatory risk, or reputational risk in the course of the FMC’s business
(b) with respect to individuals in risk management and control functions (as described under paragraph (b) under Option 1 above), individuals responsible for auditing the FMC’s compliance with policies and procedures introduced pursuant to the relevant legal and regulatory requirements in the jurisdictions where it conducts business
|4.||Minimum Mandatory Information and Right to View||
(b) compliance records relating to the Prescribed Person’s fitness and propriety, unless there is risk of tipping off the Prescribed Person, which may compromise the integrity of investigations, including but not limited to records concerning the following:
(c) last four balanced scorecard grades assigned to the Prescribed Person (relevant if the Prescribed Person was engaged in providing financial advisory service)
|5.||Cross-Sector and Cross-Border Application||
|6.||Investigation and Disciplinary Process||
|7.||Mode of Implementation||