Guide to Employee Background Checks for Financial Institutions

The stakes are high in the financial industry. Not only does this sector involve sums of money, but it also processes sensitive information regularly. For this reason, the integrity and reliability of employees are paramount. Ensuring the skills and trustworthiness of every employee underscores the importance of thorough background checks, a fundamental practice to vet potential employees' past experiences and records. Learn more about employee background checks for financial institutions here. 

The Importance of Background Checks in Financial Institutions

Employee background checks are important for financial institutions because they are working with very sensitive information on a daily basis. Conducting a thorough pre-employment check on a new hire or re-screening on existing employees can help:

Improve compliance 

Remember that financial institutions are heavily regulated, that’s why in many countries, background checks (eg. credit checks) are a legal requirement for pre-employment. Should there be a concern and the regulatory bodies find out that you did not do your due diligence, you may face legal consequences.

Prevent financial losses and legal battles

Incompetence can result in costly mistake, and sometimes, even penalties (eg. accountants committing errors in taxes). Furthermore, a bad hire with unethical behaviour can engage in nefarious activities (eg. fraud) that lead to direct financial losses and legal battles. 

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Prevent security breaches 

In the financial sector, where sensitive financial data is prevalent, hiring individuals without proper vetting can increase the risk of information theft and security breaches. Some of the information types they can leak include:

• Personal and sensitive information
• Confidential information (eg. marketing strategies, trade secrets, financial data, etc)
• Intellectual property
• Access to the organisation system 

Safeguard company reputation

If an employee engages in illegal or unethical behaviour, it can tarnish the reputation of the financial institution, potentially leading to a loss of customer trust and business.

Overall, employee background checks help employers ensure that they are not hiring someone with a criminal history or who has been terminated from their previous job due to nefarious behaviour. Thorough background checking also provides insights to the candidate’s attitude and personality, helping organisations identify someone who might be a threat to their own integrity and compliance.

Background checks are becoming more important because of the rise in identity theft, fraud, and other financial crimes. 

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Key Types of Background Checks for the Financial Sector

There are different types of background checks that can be conducted on financial industry roles, and each one has its own unique set of benefits to help a related business to be compliant. In order to make an informed decision about which type is best for your company, it is important to understand the different types available.

The financially regulated background checks typically include:

• Financial Regulatory‍
• Adverse Financial History or Credit Checks
• Global sanctions‍
• Criminal records‍
• Employment history‍
• Education history‍
• Personal identification information‍
• Residential history

Financial Regulations Checks

Financial regulations checks determine the candidate’s history in financial regulatory agencies. These checks identify if the candidate has responsibility in financially-regulated activities, has received any disciplinary action from financial-regulatory bodies, and if there are financial sanctions against them in other countries. 

Process and Turnaround Time

The process accesses databases that may not be available to all employers. Hence, companies often outsource these checks to background screening agencies. The turnaround time varies, and can be quick depending on the agency. 

Adverse Financial History or Credit Checks

Credit history checks are important to gauge the financial responsibility of an individual. In financial roles, this check can indicate how responsibly an individual manages debt and finance, which is important when they are managing or advising on others’ financial matters.

Process and Turnaround Time

The process differs depending on where you operate your business, but in general, you either request for the credit report from the candidate themselves OR you request it from the accredited agencies.

• In Singapore, for instance, the Credit Bureau of Singapore may provide the reports to eligible companies. 
• In Malaysia, the candidate themselves may request for the credit report and the employers may require it during the hiring process. 
• Australia has different institutions where credit reports can be generated, and the government recommends employers to obtain reports from each of these agencies.

In general, the process can be completed in a few days. Learn more about Credit Checks here. 

Global Sanctions 

Global sanctions checks are critical in the financial sector to ensure compliance with international laws and regulations, including anti-money laundering (AML) and countering financing of terrorism (CFT). These checks help identify individuals who may be on international watchlists, thereby preventing associations that could expose the institution to legal penalties or reputational damage.

Process and Turnaround Time

The most common way companies conduct global sanctions checks is through background screening platforms that have access to international databases. As these checks are often automated, the process can be instantaneous or up to about a week. 

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Criminal History Check

Criminal history checks are crucial in the financial sector to prevent fraud, embezzlement, and other financial crimes. These checks help ensure that individuals with a history of dishonesty or criminal financial dealings are not placed in positions of trust, where they could potentially harm the business or its clients.

Process and Turnaround Time

The common process in criminal history checks is to require the applicants to submit a clearance from the government body that releases it (eg. Singapore Police Force, National Bureau of Investigation in the Philippines, etc.) 

However, in other countries, such as Malaysia, the government databases may not be accessible to third-parties, so partnering with a background screening agency might be the best option. 

The turnaround time varies, but generally a few days to a few weeks. Learn more about Criminal Records Checks here.

Employment History Checks

Employment history checks are particularly crucial in the financial sector where expertise directly correlates to performance and compliance with stringent regulatory standards.

Process and Turnaround Time

In most cases, employers contact former companies and institutions directly. However, as this can be a tedious process, many use third-party verification services, such as Veremark. Turnaround time varies greatly depending on how many employers you want to check and their responsiveness. 

Education Verification

Verification of educational credentials ensures that employees in the financial sector have the qualifications and knowledge purported on their resumes. This is crucial for roles requiring specific financial expertise or professional qualifications.

Process and Turnaround Time

To verify the candidate’s education attainment, companies often get in touch with the colleges and universities to verify details such as degree, graduation date, and recognitions received. The whole process can take anywhere from a couple of days or weeks. 

Identity Checks

Verifying personal identification ensures that the candidate is exactly who they claim to be, a basic yet crucial aspect of financial integrity and security.

Process and Turnaround Time

The usual process is to compare government-issued IDs against official records or databases. Depending on the IDs used and method, it can be instantaneous or may take several days.  

Here’s more information about Identity Checks. 

Residential History Checks

Residential history checks can provide insights into an applicant's stability and reliability (eg. frequently changing addresses may indicate that they have problems with the law). They can also verify the candidate's past addresses for regulatory and security purposes in the financial sector. 

Process and Turnaround Time

The process for residential history checks include verifying the past addresses listed in other checks (eg. credit reports, criminal records). Considering this, the turnaround time then depends on which other background checks you choose to check the addresses with. 

Essential Components of a Financial Background Check

While the above mentioned checks are ideally included in the background checks conducted on candidates for any financial role, there’s a chance that you may not run all of them. What you choose, after all, depends on other factors such as who you’re hiring (eg. are they foreign), your labour capacity, preferences, or budget. 

Still, for a financial background check, the following components are essential:

• The candidate’s name, age, and address 
• Credit report and credit score 
• Criminal records, especially those pointing to theft, fraud, embezzlement 
• Employment history, particularly their experience for the role and if they’ve received disciplinary action for things like information breach, theft, etc. 
• Education history, if they have the academic qualifications for the role (although note that some employers choose to prioritise experience over the accomplished degree) 

How to Conduct a Proper Employment Screening Process for Financial Service Companies?

A proper employment screening process for financial service companies starts with a thorough review of the company's needs and expectations.

After establishing the company's needs, it is important to assess what type of position the candidate will be filling. A financial institution should take into account not only the qualifications, but also the personality traits that are needed for that particular position. 

From there, employers can decide which background checks to conduct. Of course, the choice takes into account additional factors, such as whether the checks will be conducted in-house or through a reliable background screening platform. 

Below are some of the best practices to take for an effective background check process in the financial institution:

• Ensure compliance with the legal standards: Adhere to local and international privacy laws to protect candidate rights and avoid legal penalties. Laws require written consent before conducting any checks, and to handle personal information carefully. 
• Implement a standardised process: Apply a consistent procedure across all candidates to maintain fairness and eliminate bias. This highlights the importance of having a background check policy. 
• Include Global Sanctions and Watchlists Checks: Screen for international financial sanctions and regulatory watchlists, especially critical for roles involving global transactions.
• Conduct periodic re-screening: Regularly update checks for current employees to capture any significant changes that might affect their suitability. Here’s a guide to Employee Rescreening. 
• Evaluate findings in context: Analyse any adverse findings within the appropriate context, considering the nature of any offences and the time elapsed, to ensure fair decision-making. This highlights the importance of adjudication and adverse action notice. 

How to Find the Best Background Check Provider for Financial Institutions?

There are various background check providers in the market today, which makes it challenging to find the best one. However, there are certain qualities and features that one should look out for when choosing a provider.

The best background check providers for financial institutions will be the ones that can provide a wide range of services that are tailored to what the institution needs such as being a FSQS registered supplier which indicates that an organisation has gone through the process required to demonstrate its commitment and credentials to the financial sector.

It is important to find a provider who offers customised background checks and reports in order to better protect your company. 

Also choose a provider that has the latest technology and tools, some of the providers are now using AI technology as well as blockchain technology in their background screening services. 

Lastly, the background check provider should also have a team of qualified professionals that can help your institution in whichever way you require, in order to strengthen your hiring and onboarding.

Why Choose Veremark for your Background Screening?

Veremark is on a mission to transform the background screening and reference checking market - adding speed, automation, security and scalability to the way you conduct your employment checks.

Our award-winning software automates your entire background screening process. The result is fast check turnaround times (sometimes even instant), standardised and auditable processes and an improved overall experience for you and your candidates. Likewise, your candidates' data is safe with us. We provide enterprise-level IT security and data protection to adhere to even the strictest regulations.

Veremark is scalable: request only the checks you need for any financial sector role - from employment history checks to global sanctions and credit checks. We facilitate fully automated background checks for businesses of all sizes - anywhere in the world. 

We estimate an ROI of 45x on the 'cost of service' of gathering references just by automating the reference checking process for employers. Learn more about our checks here. 

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