As part of its efforts to stop ‘rolling bad apples’, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on 14 May 2021 which proposes to mandate reference checks for individuals employed by financial institutions (FIs) as senior managers or in risk taking and risk and management control functions (Reference Checks Consultation Paper). This extends MAS’ 2018 proposal to mandate reference checks for representatives (see our bulletin on the 2018 proposal here and MAS’ response to feedback here).

The Reference Checks Consultation Paper follows the recent conclusion of a consultation by the Hong Kong Monetary Authority (HKMA) which finalised the principles for the HKMA’s mandatory reference checking scheme (see our bulletin of 4 May 2021 here).

Submissions on the Reference Checks Consultation Paper close on 25 June 2021.

1. Extension of mandatory reference checks to other employees

MAS has observed that apart from representatives, the conduct of other employees has the potential to result in detrimental impact on an FI’s prudential soundness, reputation, customer’s interests or the public’s confidence in the financial industry. To mitigate the risk of ‘rolling bad apples’, which refers to individuals who engage in misconduct in one firm and then move on to another firm without disclosing their earlier misconduct to the new employer, MAS is proposing to extend mandatory reference checks beyond representatives to other employees of FIs.

2. Scope of the proposed mandatory reference checks

In keeping with MAS’ expectations under its Guidelines on Individual Accountability and Conduct (IAC Guidelines) that FIs conduct the necessary due diligence prior to appointing senior managers to ensure that they are fit and proper for their roles, MAS proposes to extend mandatory reference checks to individuals identified as ‘senior managers’, which includes those persons employed in an executive capacity by, and are principally responsible for the day-to-day management of, the FI, as set out in Annex A of the Reference Checks Consultation Paper. This list is similar to the list of core management functions set out in Annex B of the IAC Guidelines, with the addition of deputy CEO and/or resident manager.

In addition to senior managers, MAS is considering two options (see Table A below) to either fully align (option 1) or partially align (option 2) the mandatory reference checks scope with the scope of functions under MAS’ proposed Harmonised Expanded Power to Issue Prohibition Orders (see our bulletin here).

Table A: Options for scope of employees

 

The FIs in scope are wide ranging and include capital markets services license holders, licensed financial advisers, registered insurance brokers, banks, merchant banks, insurance companies, finance companies and licensed payment service providers, conducting regulated activities under MAS-administered legislation.

3. Mandatory information to be included in references

MAS proposes that the reference checks must cover certain mandatory information relating to the individual in the past five years. The lookback period is based on the number of calendar years and not years of employment. MAS had proposed a lookback period of ten years in its Consultation Paper on Mandatory Reference Checks for Representatives, so the alignment of the lookback period with existing record retention requirements in Singapore is a welcome change.

MAS proposes to require FIs to provide the mandatory information set out in Table B below no later than 21 calendar days from the date of receipt of a reference check request (this is a change from the 14-day period that was proposed in MAS’ Consultation Paper on Mandatory Reference Checks for Representatives). MAS proposes to require FIs to provide the individual with the right to view (but not a right to edit) the reference prepared upon the individual’s request. FIs will need to put in place an arrangement to allow such requests to be made by individuals and for the references prepared to be shared upon such request.

FIs are expected to take reasonable steps to request relevant information in instances when hiring individuals who are or were employees from companies located outside Singapore, non-financial sectors, or FIs in Singapore but outside the FIs in scope of the proposed mandatory reference checks. In such instances, FIs are to satisfy themselves of the fitness and propriety of the prospective employees. An FI can proceed with the recruitment if it has requested for the reference check and has deemed the prospective employee to be suitable for the position based on its other due diligence checks, notwithstanding the absence of a response to the reference check request or the response to a reference check request not containing sufficient information.

Table B: Details of information required by mandatory reference checks

MAS also proposes that FIs maintain records of the mandatory information set out in Table B above for all employees, with the exception of ancillary service personnel such as drivers, food and beverage personnel and clerical personnel, for a minimum period of five years.

Furthermore, FIs will be expected to:

(a) establish policies and procedures governing its investigation and disciplinary process;

(b) communicate the policies and procedures to all employees upon employment, and make the information accessible on an ongoing basis;

(c) conduct a fair and objective internal investigation and disciplinary proceeding in a prompt manner where there are reasonable grounds to believe that an employee has breached the FI’s internal policies and procedures or laws and regulations applicable to the FI or individuals (in relation to their duties and responsibilities in the FI); and

(d) ensure proper documentation of the investigation and disciplinary proceedings, including evidence collected, interviews conducted and grounds of decisions.

FIs should also give the employee an opportunity to explain or defend himself or herself against the allegations during the investigation and disciplinary process.

MAS proposes to effect the mandatory reference checks requirements in the form of Notice(s) issued under relevant legislation. MAS proposes to give a transition period of six months, i.e. six months after the Notice(s) issued under the relevant legislation is published.

4. Concluding thoughts

No legal immunity will be available to FIs to absolve them of liability arising from their responses to reference check requests. Accordingly, FIs should be mindful that employers owe a duty of care to their employees, whether former or present, when preparing a performance reference, as was held in of the case of Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd [2016] 4 SLR 1124. The Singapore Court of Appeal also held in that case that when writing a reference for its employee, an employer has to exercise reasonable care to ensure that:

(a) the facts stated in the reference are true and accurate; and

(b) any opinions expressed therein are based on, and supported by, facts which are true.

Employers also have to exercise reasonable care to ensure that a reference does not give an unfair or misleading overall impression of an employee because it fails to present the full picture, even if the discrete pieces of information contained in the reference are factually correct.

FIs will need to ensure that they exercise reasonable care in preparing and communicating references that are accurate, objective, clear, balanced and based on verifiable facts. FIs should not selectively disclose information, if withholding certain information will render the reference incomplete, inaccurate or unfair. References should be given in good faith and without malice.

From an employment law perspective, employers will need to revisit practices from the hiring to separation phases during the transition period. This will include processes and documentation relating to conditional offers of employment, collection, use, disclosure and retention of personal data, document retention and data access requests and confidentiality and separation agreements.