MAS issues (1) consultation paper on proposals to mandate reference checks, and (2) response to public consultation on revisions to misconduct reporting requirements and proposals to mandate reference checks for representatives
28 May 2021
On 14 May 2021, the Monetary Authority of Singapore (“MAS”) issued:
- Consultation Paper on Proposals to Mandate Reference Checks; and
- Response to Feedback from Public Consultation on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives
This article sets out the key highlights of the above.
Consultation Paper on Proposals to Mandate Reference Checks
On 14 May 2021, MAS issued the Consultation Paper on Proposals to Mandate Reference Checks, in which it proposes to extend the mandatory reference check requirements beyond representatives to other classes of individuals working in the financial industry (“2021 Consultation”). This is a furtherance of its proposals of July 2018, where MAS proposed to require financial institutions (“FIs”) to conduct reference checks and respond to reference check requests on prospective representatives, as set out in the consultation paper on “Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives” (“2018 Consultation”). The 2018 Consultation informed that MAS would consider introducing similar mandatory reference check requirements to a broader segment of the financial industry, beyond representatives.
With regard to the 2021 Consultation, MAS explains that, apart from representatives, the conduct of other employees has the potential to result in detrimental impact on customers’ interests, or on an FI’s prudential soundness and reputation. Poor conduct could also impact public confidence and trust in the financial industry.
MAS expects FIs to conduct adequate due diligence on prospective hires to assess their character, integrity and track record. To facilitate this, a collective effort across the financial industry is needed 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.
The 2021 Consultation closes on 25 June 2021.
Response to feedback received on revisions to misconduct reporting requirement and proposals to mandate reference checks for representatives
The 2018 Consultation Paper contained proposed revisions to the misconduct reporting requirements and proposals to mandate reference checks for representatives and broking staff (collectively, “representatives”) conducting regulated activities under the Securities and Futures Act, Financial Advisers Act and Insurance Act. The consultation closed on 6 August 2018.
On 14 May 2021, MAS issued its Response to the feedback received from the 2018 Consultation Paper (“Response”), and stated that it will also take into consideration feedback received in its 14 May 2021 Consultation where relevant when implementing reference check requirements.
Following from the consultation, MAS will be implementing the following:
- Scope to include registered fund management companies
- Revisions to categories of reportable misconduct
- FIs to be required to lodge a misconduct report with MAS within 21 calendar days when the FI has reasonable grounds to believe that misconduct has been committed
- FIs to provide their representatives with misconduct reports filed with MAS, including subsequent updates to the misconduct report
- Representatives to provide their current or recruiting FIs with any misconduct report that has been filed against them, including subsequent updates to the misconduct report
- FIs to update MAS on the outcome of police investigations
- Enhanced standards for FIs’ investigation processes
- FIs to submit their misconduct and investigation reports to MAS using prescribed formats
- FIs to conduct reference checks on prospective representatives with their current/past employer(s) and to respond to reference check requests
- FIs are to provide mandatory information in prescribed categories over a lookback period for reference checks to a minimum of five years
- Timeline of 21 calendar days for FIs to respond to reference check requests
Acknowledging the complexity of investigations and the risk of tip-offs, MAS stated that it will not proceed with its proposal to require FIs to notify a representative when the representative is under investigation.
In the Response, MAS further clarified that misconduct (i) identified through mystery shopping exercises, and (ii) committed in Singapore or overseas are required to be reported to MAS if they fall within the reportable misconduct categories.
Further, MAS will issue misconduct reporting requirements under the Insurance Act to require the reporting of misconduct committed by financial advisory representatives advising on long-term accident and health products. Meanwhile, financial advisory firms should continue the current practice of reporting misconduct committed by their representatives in the advisory and sales process for long-term accident and health products.
The following materials are available on the MAS website www.mas.gov.sg, via the webpages on the Consultation Paper on Proposals to Mandate Reference Checks and the Consultation Paper on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives:
- Consultation Paper on Proposals to Mandate Reference Checks
- Response to Public Consultation on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives
- Annex 2 (Investigation Report Template and Misconduct Report Template)
- Annex 4 (Feedback received from Consultation on Revisions to Misconduct Reporting Requirements and Proposals to Mandate Reference Checks for Representatives)
Allen & Gledhill Regulatory & Compliance
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