In a most recent example of a focus on conduct risk in the financial sector, the Hong Kong Monetary Authority (HKMA) issued a new Consultation Paper on the implementation of a Mandatory Reference Checking (MRC) scheme, aimed at addressing the s so-called “rolling bad apples” problem in the banking sector.

The term “bad apples” refers to individuals who engage in misconduct during their employment at a financial institution and may be terminated as a consequence, only obtain employment elsewhere in the industry without disclosing their misconduct to their new employer. “Individuals who are not held accountable for their misconduct at one firm and surface at another firm could have a higher likelihood of repeating their misconduct,” said the HKMA.

Under the MRC scheme, employees would need to disclose 10 years of their employment records. All Authorized Institutions would have to maintain employment records of their employees for at least 10 years. In phase one, this would be confined to the local banking sector.  After one year, feedback would provide the basis for Phase 2 implementation, which will extend to bank employees heading key supporting functions, and employees in client-facing and sales positions.

The HKMA is very likely to continue and even step-up its focus on culture and conduct related risks among the Authorized Institutions it oversees, to include foreign-headquartered firms operating in Hong Kong.  To learn more about the HKMA’s priorities in this context, don’t miss the HKMA’s detailed contribution to Starling’s 2020 Compendium.