Annex 2 – Summary of Industry’s Comments and HKMA’s Responses
# Comments / questions from respondents HKMA’s response
Q1. Do you have any comments on the proposed phased implementation approach?
1. No particular comments received. N/A
Q2. Do you have any comments on the respective scope of personnel proposed to be covered by Phase 1 and Phase 2 of the proposed MRC Scheme?
2. Treatment of existing employees The MRC Scheme primarily serves to facilitate AIs in making Some respondents sought clarifications on whether the MRC employment decisions, thus it is not necessary for AIs to conduct Scheme will also cover existing employees. One respondent MRC on existing employees who currently hold in-scope roles. The suggested that the scope should be expanded to cover not only MRC Scheme will only apply to new hires but not to existing prospective employees applying for in-scope positions, but also employees who currently hold in-scope roles.
existing employees who are employed in those specified
positions. One respondent sought clarifications on whether For an individual who leaves an AI but rejoins multiple times over the MRC Information previously gathered by a recruiting AI could be 7-year period, the recruiting AI can make use of previous MRC
“recycled” within the AI if an individual leaves the AI but rejoins Information it had gathered on the individual and conduct MRC on multiple times over the specified period. other relevant employment records that were not covered in the
previous check.
3. In-scope personnel for Phase 2
Most of the respondents considered having the MRC Scheme cover client-facing staff to be too broad and would induce heavy burden on banks and significantly increase the number of employees who will be subject to the MRC process. They also considered there is no pressing need to address RBA for junior staff. Some of the respondents suggested that Phase 2 of the MRC Scheme be confined to staff who are licensed with financial
In view of comments that a relatively broad scope of coverage of client-facing staff could induce heavy resource and operational burden on AIs, and that the risks posed by RBA are higher for licensed roles, it is proposed that Phase 2 should only extend the scope of personnel covered in Phase 1 to include employees who are registered or licensed with the local financial regulators as elaborated in paragraph 32 (ii) to (iv) of the Consultation Paper. The inclusion of other roles (including non-client facing roles) under the MRC Scheme
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# Comments / questions from respondents
regulators. One respondent suggested the inclusion of some non-client facing roles, such as settlement personnel, into the MRC Scheme.
HKMA’s response
can be considered further by the IWG having regard to the experience in Phase 1.
4. Intragroup move / promotions / cross-border application Most of the respondents sought clarification on whether the MRC Scheme will apply to internal transfers from within the same group of the recruiting AI, and to employees who are being promoted to in-scope roles. Some also had questions about the MRC Scheme’s cross-border application, say for employees based outside Hong Kong but with regional oversight functions in Hong Kong.
AIs within the same group may share common internal records or human resources functions. The MRC Scheme will allow flexibility for AIs within the same banking group to perform reference checks using procedures other than those prescribed in the MRC Scheme as long as the relevant information can be obtained. The requirements relevant to the requesting or updating of MRC information can be carried out in a way that best suits the intragroup practice taking into account their AI’s group internal records, common human resources functions or other means for sharing relevant information. The onus will still be on the recruiting AI within the group to obtain the necessary information to satisfy its obligations to ensure the individual is fit and proper.
For employees subject to intragroup transfers / promotions, such employees may have already established a track record after having served in the AI’s group for a considerable period of time. In such cases, AIs can consider whether it is useful to conduct MRC on such employees to cover the time of their employment prior to joining the group, taking into account the number of years of experience that they have had in the AI’s group.
At the initial stage, we are of the view that the MRC Scheme should be applied to AIs in Hong Kong but not their head offices or branches
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# Comments / questions from respondents HKMA’s response
outside Hong Kong given potential cross-boundary issues. The HKMA will keep in view the implementation of the MRC Scheme and consider whether to extend its coverage subject to discussion with the industry.
5. Contract or temporary employee
Some respondents considered that applying MRC to temporary and contract employees may be disproportionate to the duration of their tenure with the recruiting AI. Some considered that such employees are often recruited to promptly fill temporary vacancies, and that requiring recruiting AIs to comply with the MRC Scheme requirements with respect to such employees would essentially deny them the ability to solve certain urgent and pressing personnel shortage. One respondent also raised that temporary human resources such as agency contractors, secondees, consultants or interns should be exempted as AIs generally do not maintain full records of temporary employees or third-party contractors.
The proposed in-scope personnel are generally those who may pose significant issues if the RBA phenomenon is not addressed properly, thus we consider it appropriate for the MRC Scheme to cover these roles as long as they fall within the scope of personnel of the MRC Scheme irrespective of the length of the employment.
Employees that are on secondment or assigned by third parties to perform in-scope roles would be subject to the MRC Scheme and the reference check should be performed by the AI concerned or through other arrangements (such as outsourcing). The AIs should be held ultimately responsible for the MRC process. To avoid causing an undue delay in filling pressing vacancies, AIs can exercise discretion to determine the appropriate timing in conducting the MRC and may consider advancing hiring decisions to best suit their business or operational needs, see #53 on finalisation of employment decision for details.
6. Information in relation to previous out-of-scope role
Some respondents sought clarification on whether MRC information for out-of-scope role employees should be maintained and provided to recruiting AIs for MRC purpose.
The reference providing AIs will need to provide recruiting AIs with MRC information on individuals for role(s) that he/she held in the reference providing AI irrespective of whether such role(s) was in-scope under the MRC Scheme.
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# Comments / questions from respondents HKMA’s response
7. Alignment of scope of Phase 1 and Phase 2 personnel with existing licensing and approval regimes of the HKMA and other regulators
One respondent asked whether there is a need for individuals who are subject to the approval and licensing regimes of HKMA or other regulators to be covered under MRC Scheme, and if so how the MRC Scheme can be better aligned with the relevant licensing requirements.
The MRC Scheme aims to help strengthen AIs’ recruitment process and remove some obstacles that AIs may face in assessing the fitness and propriety of prospective employees, including with respect to roles that require approvals from regulators, such that AIs can play a more proactive role in tackling the RBA phenomenon.
Given the MRC Scheme has yet to be implemented, further considerations about potentially streamlining the MRC Scheme with other related licensing requirements could be considered in the longer term taking into account implementation experience of the MRC Scheme.
8. Overlap of heads / deputy heads of key supporting functions with §72B managers under the BO
Some respondents considered that the role of deputy head is vague and may have different meanings across the industry, and that it can be exempted from the scope of MRC. Some noted that heads/deputy heads of key supporting functions as proposed to be covered in Phase 2 will largely overlap with §72B managers who are already covered in Phase 1. One respondent noted that individuals within the HR and legal functions of AIs are currently unregulated, and that the inclusion of senior managers of these functions within the scope of the MRC Scheme would be unprecedented in Hong Kong.
For simplicity and to avoid misinterpretation issues, the HKMA agrees to remove heads / deputy heads of key supporting functions from MRC coverage under Phase 2. The coverage of in-scope roles for Phase 2 can be further considered in the review to be conducted prior to Phase 2 implementation.
9. Inclusion of ROs under the MPFSO under Phase 1
One respondent noted that since EOs under the BO and ROs The HKMA agrees to include ROs under MPFSO in the MRC Scheme.
As ROs under the IO and the MPFSO are important roles in AIs, we
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# Comments / questions from respondents HKMA’s response
under the IO fall under Phase 1 and Phase 2 of the MRC Scheme will bring ROs under the IO and the MPFSO under Phase 1 of the MRC respectively, ROs under MPFSO should also be covered under Scheme.
the MRC Scheme.
Q3. Do you have any comments on the proposed timeframe for implementation of Phase 2 following the launch of Phase 1?
10. Phase 1 implementation Upon the publication of the consultation conclusions, the HKMA will Respondents sought clarification on the timing for the invite HKAB to set up an IWG to formulate the operational details of implementation of Phase 1. They considered that sufficient the MRC Scheme in accordance with the principles set out in the time will be required by AIs to set up internal operational Conclusions Paper. Such operational details should be finalised processes to comply with the MRC Scheme requirement and to within 6 months of the publication of the Conclusions Paper for conduct training for relevant staff. They proposed to set the endorsement by the HKMA. On the timeline for the actual implementation date to be at least 12 – 18 months following the implementation of the MRC Scheme, the HKMA noted the industry’s HKMA’s publication of the consultation conclusion. request for a transition period from the time that the operational details are endorsed by the HKMA, in order to provide sufficient time for AIs to set up their internal processes and procedures for the MRC Scheme. The IWG may further deliberate on the implementation timeline of the MRC Scheme in consultation with the HKMA. It is envisaged that, following the implementation of the MRC Scheme, the IWG will also take the lead in conducting the review on the implementation of Phase 1 of the MRC Scheme.
11. Phase 1 review and Phase 2 implementation
Respondents noted that conducting a Phase 1 review after 1 year of implementation would be insufficient to gain relevant experience and to test internal processes given the low turnover rate of Phase 1 personnel. They proposed to allow an additional year for the Scheme to operate before conducting a review on
We agree that a review of Phase 1 could be conducted 2 years after the implementation of Phase 1 to allow sufficient time to gain experience and to identify room for improvements. Consultation on Phase 2 implementation could be conducted in conjunction with the review on Phase 1, following which the operational details of Phase 2 can be fine-tuned and confirmed for implementation accordingly.
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# Comments / questions from respondents HKMA’s response
Phase 1. Respondents generally considered that a second round of consultation will be necessary before the launch of Phase 2 so that the industry can be involved in the process given the anticipated complexity and the wider scope of coverage under Phase 2. Some respondents invited the HKMA to consider adopting a staggered approach to the implementation of Phase 2 given the broad range of personnel it covers.
Q4. Do you have any comments on the proposed scope of MRC information, in particular information relating to investigation in progress but not yet concluded?
12. Disclosure and provision of updates related to ongoing investigation
Most of the respondents expressed concerns about disclosing open investigations, as they may expose AIs to potential litigation risks and that it may affect ongoing investigations, in particular those involving regulatory bodies or a suspected offence, and those where the investigation is expected to be conducted confidentially or is subject to secrecy requirements under applicable laws. It may also be unfair to the individuals concerned. In this connection, some respondents proposed that disclosure be confined to concluded investigations only. On a related note, some respondents sought clarification on the timeframe for reference providing AIs to provide notifications to recruiting AIs on concluded investigations.
In view of the industry’s comments, the HKMA considers that the issue of the reporting of ongoing investigations could be further deliberated by the IWG to be established. On the one hand, there are constraints and potential legal implications associated with disclosure of ongoing and incomplete investigations by the reference providing AIs to the recruiting AIs. However, on the other hand, if all ongoing and incomplete investigations are excluded, it may provide a potential loophole for the “bad apples” to resign from the current job once an investigation about their misconduct has been started or is about to conclude with likely disciplinary actions, thereby bypassing the MRC Scheme and escaping from the consequences of their misconduct behaviour. The HKMA considers that in principle the reference providing AIs should provide information about ongoing investigations with allegations that are of serious nature as well as those which are about to conclude with disciplinary actions.
The MRC information so provided may contain basic information about the allegations and the state of investigation. As the
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# Comments / questions from respondents HKMA’s response
prospective employee will be given an opportunity to be heard, it will be up to the recruiting AI to take into account the information available before making the recruitment decision. This would help strike a balance between mitigating AIs' litigation risks and addressing the risk of hiring “bad apples”. The IWG may duly consider the matter and prepare guidance on the types of ongoing investigations that should be included as well as the exemptions that should be applied, for instance due to statutory prohibitions, taking into account the above considerations as well as views of the industry participants.
As for the timeframe to provide an update on concluded investigations, reference providing AIs should provide an update to a recruiting AI upon conclusion of investigation cases where the individual is found to have committed serious misconduct within one month after the cases are concluded.
13. Internal informal review
Some respondents sought clarification on whether investigations cover internal informal reviews and the types of investigations or reviews that would be captured by the MRC Scheme.
In considering whether internal informal reviews or other forms of reviews concerning staff conduct matters should be covered under the MRC Scheme, AIs should consider the context of such reviews. If the review aims to examine suspicious misconduct cases with prima facie evidence, then it should be considered as investigations. On the other hand, reviews conducted on the AIs’ processes and controls, or general complaints with little prima facie evidence and subsequently found unsubstantiated, should generally not be considered as investigations. However, if such a review unveils that an individual may have been involved in misconduct, AIs should conduct an
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# Comments / questions from respondents HKMA’s response
investigation accordingly.
See #27 below for a non-exhaustive list of investigations. The IWG is invited to set out more specific criteria for the types of investigations or reviews to be included for reporting under the MRC Scheme.
14. Employees working in multiple entities within a group
One respondent sought clarification on cases where employees have employment records at multiple entities within a group, whether reportable information should be limited to his/her activities at AI(s) or should also cover those carried out at other affiliates within the group. One respondent suggested that a streamlined approach to request MRC information from different AIs within the same group can be considered.
The reference checking process is expected to be carried out on an AI entity basis. In other words, if the employee’s employment records span across various entities/branches/head office within a group, reportable information should be confined to the employee’s activities at the reference providing AI but not at other affiliates within the same group. The reference providing AI is considered to have discharged its obligations under the MRC Scheme so long as information within the reference providing AI (and not of its affiliates) have been provided to the recruiting AI. If a prospective employee has worked at more than one AI within a group, the recruiting AI should approach the different reference providing AIs for MRC separately.
The streamlined approach to group companies can be further considered by the IWG subject to the general feedback of the industry.
15. Reason for the cessation of appointment
On the MRC Information Template, one respondent sought clarification on the level of detail required in disclosing the reason for cessation of appointment of the individual
As a general reference, it is considered sufficient for AIs to indicate whether an employee resigned on his/her own accord or whether his/her employment was terminated by the AI with notice or summarily.
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# Comments / questions from respondents HKMA’s response
concerned.
The IWG is welcomed to work out any reference template for standardisation of reply.
16. Scope of involvement
One respondent sought clarification on what constitutes
“involved” in misconduct that would be reportable under question 1 of the MRC Information Template, as an individual may simply be a member of the management team when the AI committed a regulatory breach, or he/she may be interviewed as part of a wider investigation but did not commit the misconduct.
Reportable information in MRC should cover employees who committed misconduct or were accomplices in the misconduct activities. Matters relating to employees who assisted during the investigation process but did not take part in the misconduct himself/herself are not required to be reported.
The IWG is invited to develop more detailed and practical instructions together with examples on what constitutes reportable information for reference by the industry.
17. Materiality Threshold
Some respondents considered that defining a materiality threshold for reportable misconduct would be useful, such that reportable misconduct would be confined to those of serious nature. One respondent suggested to attach an amount threshold (e.g. beyond a HKD amount threshold in a fraud case).
One respondent proposed to only provide records of misconduct which led to a dismissal.
The HKMA is of the view that quantifiable threshold of severity may not be applicable in all circumstances, given that the operational
The HKMA is of the view that quantifiable threshold of severity may not be applicable in all circumstances, given that the operational