MAS to require financial institutions to conduct and respond to reference checks

30 January 2024

On 12 December 2023, the Monetary Authority of Singapore (“MAS”) issued its response to feedback received on its consultation paper, published on 14 May 2021, setting out proposals to require financial institutions (“FIs”) to conduct and respond to reference checks. The proposals were aimed at mitigating the risk of “rolling bad apples”, where individuals who engage in misconduct in one firm move on to another firm without disclosing their earlier misconduct to the prospective employer.

Highlights of MAS’ response are set out below.

Scope of FIs

MAS will proceed with its proposal to require the FIs listed in the consultation paper to conduct and respond to reference checks.

Scope of employees

MAS had consulted on the scope of employee positions for which FIs are required to conduct and respond to reference checks:

• Option 1: Aligned with scope of relevant functions under the Harmonised and Expanded Power to issue Prohibition Orders (“POs”) under section 6 of the Financial Services and Markets Act 2022 (“FSMA”). These include individuals who perform functions relating to the handling of funds, risk-taking, risk management and control, or critical system administration functions.
• Option 2: Partially aligned with scope of functions under the Harmonised and Expanded Power to issue POs. This option focuses on functions that can directly cause or result in financial risks to FIs or customers.

In its response, MAS said that it will proceed with Option 1 but adopt a risk-based approach, to require reference checks only on senior managers (“SMs”) and material risk personnel (“MRPs”) performing relevant functions under section 6 of the FSMA. This takes into account that misconduct by SMs and MRPs (who hold greater responsibilities within an FI) could potentially cause greater detriment to their FIs and customers. To facilitate implementation by FIs, MAS will provide guidance on the specific functions that will be within scope.

Lookback period

MAS will proceed with the proposal for FIs to cover a lookback period of five years.

Minimum mandatory information

Following feedback, MAS will proceed with the proposed list of mandatory information to be provided for reference checks, except that:

• disciplinary actions that would have been taken will be excluded; and
• ongoing investigations will be required only if the individual is the subject of the investigation and is aware that he or she is being investigated.

Right to view

Following feedback, MAS has decided not to mandate the right to view references at this juncture.

Implementation and transitional period

MAS had proposed to impose the mandatory reference check requirements by notice(s), and for the notice(s) to come into effect six months after publication of the notice(s).

In its response, MAS said that it will proceed to impose the requirements via notices to ensure FIs conduct and respond to reference checks on a minimum set of standardised information. MAS will be consulting on the draft notices in due course.

In view of the feedback for a longer time to implement the proposed requirements given the need to update internal processes and systems, MAS will provide a transitional period of one year from the issuance of the notices.

Reference materials

The response is available on the MAS website www.mas.gov.sg.