A guide to background checks in financial services, banking and fintechClarifying the rules around background checks to protect your business

The Senior Managers Regime vs The Certification Regime

The legislation^[1] has two elements. It’s important to note that the requirements of the senior managers regime are different from those of the certification regime, as they apply to two separate groups of qualified individuals.

Traditional banks, financial services providers, and fintech are all required to comply with both parts of the SMCR regulation (as are dual-regulated providers) and ensure that they are performing the right checks for each group.

What is the Senior Managers and Certification Regime? Learn more by exploring our detailed guide.

What background checks are required for the Senior Managers Regime?

Under the Senior Managers Regime, businesses must complete thorough due diligence to confirm that their managers are qualified to carry out the regulatory duties assigned to them. This is known as the Fit and Proper Test for Approved Persons.

But beyond the minimum background check requirements, there are a number of other background checks that can inform hiring managers of the risks surrounding each candidate. Adverse findings do not necessarily mean that a candidate is removed from the hiring process; instead, it’s up to the employer to see which risks they can (and want to) mitigate.

It’s important to note that annual rechecks are required as part of the regulation.

It is a requirement for firms to perform annual assessments on the fitness and propriety of individuals. These assessments may include checks on an individual’s character, financial status, and criminal background.

As a best practice, we recommend performing the following checks annually on your SM&CR population. We can support you in determining the appropriate level of checks based on your background policy and employment risk matrix.

What background checks are required for the Certification Regime?

Under the Certification Regime, businesses are again required to validate a candidate’s qualifications, competence and characteristics. You must confirm that candidates are ‘fit and proper’ to undertake the duties associated with the role, and then re-check on an annual basis.

Best practice for checks under the senior managers regime and the certificate regime include:

Name of check	Description	Best practice checks for Senior Managers Regime	Best practice checks for Certification Regime
ID	Verification and validation of identity
Adverse financial	Is there evidence of unfavourable finances, unpaid debts or a history of late payments?
Basic Criminal Record Check (CRC) *	Unspent convictions, cautions and reprimands
Standard Criminal Record Check (CRC) *	Spent and unspent convictions, cautions, reprimands, and warnings
6 years occupational history	Proof of employment history
Qualifications	Verification of degrees, diplomas, professional courses and specialised qualifications
Sanctions	Restrictions on involvement in financial activities, typically due to criminal history
Civil litigation	Are there any ongoing or closed court cases (not involving criminal matters)?
CIFAS	Association with fraudulent behaviour or identity theft
Social media	Find, screen and analyse all accounts for risks
Professional membership	Verification of registration with required professional bodies and perform ongoing development
Gap analysis	Review the candidate’s prior experience and find out more about employment gaps
Right To Work	Verification of citizenship or the appropriate visas giving the candidate the right to work
FCA registers	Verification that the candidate is registered and authorised by the FCA
Directorship	Find history of past and present director​ships, including any conflicts of interest

* Our team of experts can support determining the correct level of Criminal Record Check required for the specific role.

The key differences in our recommendations for your Senior Manager and Certified Regime are a Directorship Search and the level of Criminal Record Check you perform. Although not all the checks listed above are required, these are the checks we believe can provide you with a comprehensive view of an individual at the point of hiring and a continued assessment of their character in role.

We also recommend performing international checks on individuals who have resided overseas in the last five years.

When are banks, FinTechs and financial services institutions required to perform SMCR checks?

Providers regulated under the FCA and PRA are required to perform background checks in three scenarios:

How long do background checks take to complete?

On average, background checks for a regulated employee can take 2 to 4 weeks to complete. However, this can vary depending on several factors:

Speed to hire is an important factor in today’s hiring market, especially because candidates are applying for multiple jobs within the financial services and fintech industry. HR teams should consider automation to efficiently screen and hire the best candidates where possible.

That being said, time savings are not the only benefit of automating the employment screening process within SMCR.

At a company where a single individual is tasked with performing all hiring checks, the perception might be that it’s cheaper to keep everything in-house. However, in terms of time savings and risk mitigation, especially from a GDPR point of view, an integrated background checking process can offer a real return on investment.

If you’re recording all the checks offline on spreadsheets, how are you ensuring that you’re purging the data correctly after the employee has left the organisation? Or re-checking as employees are internally promoted to new roles? There are many considerations.

James Marsden, Background Checking Specialist, Experian.

Do I need to complete background checks on entry-level staff?

Most definitely, background checks should be performed at every level, even though they’re not required by law. Not only is this generally good practice, but these checks can help to prevent reputational damage caused by adverse findings in the checks.

Regulated references vs standard employment references

Standard employment references typically go through the HR department, and include basic checks to verify identity, skillsets and performance. They are not specific to regulated industries, and past employers are not legally required to provide references.

Alternatively, regulated references take on more of a compliance angle, with insight into the ‘fit and proper’ status of employees. The FCA is involved in these checks, revealing any past disciplinary actions associated with the employee. Regulated references also include ‘fair’ references from past employers and are specific to regulated companies.

What background checks should you be performing on your non-SM&CR staff?

This can depend on various factors, including system access, infrastructure, and the roles and responsibilities of an individual. We can assist you with assessing your roles and determining the correct level of checks required to protect your business and employees.

Annual re-verification is as important for entry-level staff as those in senior roles.

Just because one bank does it one way, another bank on the same street could do it completely differently. As a regulated background checks provider, we can help support each bank to work out their own risk parameters in accordance with the results they’d find on the reports.

Kayleigh Haywood, Background Checking Consultant, Experian.

Should I hire high-risk candidates?

To help determine this, we recommend a thorough background checking policy and risk matrix, understanding the role of the employee, the checks you are performing, and the potential adverse information these can highlight. This allows you to decide as a business what risks you’re willing to accept and where you would like to implement a dispensation process.

When employment screening checks return adverse findings, following these policies (or setting them up if you haven’t already) will help you make difficult decisions without bias.

Imagine that a candidate’s report highlights a couple of CCJs that are not yet satisfied. The next step is to consider the level of outstanding payments, whether the person can afford to pay instalments, their risk for potential bribery/fraud, and their role within your business. You ask these questions while determining how these can fit into your employment risk matrix.

Kayleigh Haywood, Background Checking Consultant, Experian.