The Hong Kong Monetary Authority (HKMA) has announced a one-year transition period to allow authorised institutions to prepare for and implement the first phase of the new Mandatory Reference Checking regime.
According to Regulation Asia, the MRC regime was first proposed in May 2020 and aims to tackle operational, reputational, financial and other risks that so-called ‘rolling bad apples’ could present to financial institutions, as well as possible consumer harm that could result.
The publication noted that rolling bad apples refer to individuals who engage in misconduct during their employment at a financial institution but are nonetheless able to obtain employment elsewhere in the future without disclosing their earlier misconduct to the new employer.
The new regime will require Ais to conduct mandatory reference checks to fill specified positions prior to the creation of employment relationships. For in-scope positions, AIs will be required to approach the former and current AI employers of a prospective employee to request conduct-related information covering the seven years before the application for a position.
The HKMA underlined that misconduct information to be reported includes breach of legal or regulatory requirements, incidents which cast doubt on an individual’s honesty and integrity, misconduct reports filed with the HKMA, internal or external disciplinary actions arising from conduct matters and ongoing internal investigations.
Recruiting AIs must retain discretion and remain responsible for their employment decisions, however, they should document their reasons for employing an individual notwithstanding negative or inconclusive information received.
The first phase of the MRC regime will cover directors, CEOs, alternate CEOs, managers, executive officers and responsible officers for securities, insurance and MPF regulated activities. The second phase will bring into scope all staff licensed or registered to carry out regulated activities under securities and futures, insurance and MPF schemes ordinances.
The HKMA said that authorised institutions have until 2 May next year to put into place the necessary internal controls, policies and procedures required for Phase 1 implementation of the MRC regime.
A review of the MRC regime will be conducted in mid-2025, the HKMA said, two years after the implementation of the first phase.
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