Background checks are a critical ingredient of any hiring process. It is important for both employers and applicants. These checks help ensure employers know exactly “who” they’re opening their company doors to by revealing the applicants’ accurate qualifications and qualities.
The ultimate goal of background checks is to promote both trust and integrity. Regardless of which industry a company operates in, background checks are a must to weed out any candidates who might have a criminal record.
Different industries have different background check requirements. The financial services industry, however, puts more robust checks in place when compared to other industries. An FDIC background check for applicants applying for bank positions, for instance, will be more rigorous than the checks that are run on those applying for a position at a retail store. After all, the employees working in the financial industry are entrusted to handle financial data and other sensitive customer information.
But what makes background checks so important for the financial services industry? The answer is their ability to help:
- Safeguard customer privacy
- Mitigate any risks of crime
- Enhance regulatory compliance
- Bolster safety within the workplace
- Make way for a more cohesive team
Read on to understand the different types of background checks the financial industry requires and the laws that govern these processes.
What are the Legally Required Checks for Financial Services?
When it comes to making hiring decisions, all employers – including those from the financial services sector – must comply with background check laws on local, state, and federal levels. Here are 4 of the most important laws that govern background checks for financial services:
The Fair Credit Reporting Act
The FCRA or Fair Credit Reporting Act protects the privacy, fairness, and accuracy of information related to consumer credit. Anyone wanting to access these reports must possess a legally acceptable reason to see the data. This law is associated with the types of information consumer reporting agencies (CRAs) are authorized to both collect and offer to the employer. This act also governs how you, as an employer, can use the information you extract through background checks.
For instance, for positions that pay less than $75,000 per year, CRAs are not authorized to report the following types of data if it ends up being more than 7 years old. This data includes:
- Arrests that didn’t lead to convictions
- Civil judgments
- Civil lawsuits
Employers must also follow FCRA’s adverse action process should they decide to reject an application.
Federal Deposit Insurance Act
The Federal Deposit Insurance Act (FDIA) ensures financial services employers don’t hire candidates based on convictions including money laundering, and breach of trust or fiduciary duty. In addition, it also offers guidance on several important types of background screenings and the procedures and practices associated with them.
Title VII of the Civil Rights Act of 1964
The Title VII of the Civil Rights Act prohibits any kind of workplace discrimination. It also offers guidance for preventing any form of discrimination during employment screening. The EEOC or the Equal Employment Opportunity Commission is concerned with enforcing this law.
FINRA (Broker Check)
BrokerCheck is a free tool offered by FINRA. It helps employers run in-depth research on the professional backgrounds of brokers and investment advisors.
Additional Types of Background Checks to Consider
Aside from running the legally required tests, employers from the financial services industry must run the following background checks to ensure the applicants are honest about their experiences and don’t pose a threat to the workplace:
Credit history background checks help financial services employers extract information about candidates, including:
- Creditor judgments
- Late or missing payments
- Collection accounts
- Defaulted loans
These checks ensure the safety of your workforce. Through criminal records checks, employers can spot any misdemeanors, convictions, or arrests a potential candidate may have faced on the city, county, state, or federal levels.
Financial Sanction Screening
Financial sanction screening plays a monumental role during the hiring process. They help reduce any risk of financial crimes, terrorist-related or other illicit activity from unfolding in the workplace.
The terrorist watchlist is a comprehensive database that helps companies identify any information about a candidate who might be suspected of being a part of any terrorist activity.
This helps reveal detailed information about an applicant’s past work experience including the titles or positions they might have held, their employment dates, and the name and address of their previous employer.
Education verification ensures the applicant’s claims about their education are in fact true. Through education screening, an employer can determine if the candidate possesses the right qualifications to perform their job. The education history this test digs out includes any degrees, certifications, diplomas, or licenses conferred, their attendance dates, and the names and addresses of the institutions they have attended in the past.
Reference checks help determine an applicant’s professional competencies, leadership abilities, and attitude toward the work they did in the past. These checks also help determine their ethics, teamwork abilities, and any past work accomplishments.
A Final Word
The financial service industry walks on the tightrope of laws and restrictions that lays out how the background check processes must unfold. Unfortunately, these processes constantly undergo multiple unwanted changes, making background checks a complex matter.
It is critical for financial employers to review their background check procedures from time to time and make sure they’re well-versed with the industry’s ever-evolving hiring protocol.
A great way to run smooth background checks is through teaming up with professional third parties like Ethico that come with extensive knowledge of the laws that govern the background check protocols in the financial sectors and can offer the right type of checks suited for your company’s needs.
Giovanni Gallo is the Co-CEO of Ethico, where his team strives to make the world a better workplace with compliance hotline services, sanction, and license monitoring, and workforce eLearning software and services.
Growing up as the son of a Cuban refugee in an entrepreneurial family taught Gio how servanthood and deep care for employees can make a thriving business a platform for positive change in the world. He built on that through experience with startups and multinational organizations so Ethico’s solutions can empower caring leaders to build strong cultures for the betterment of every employee and their community.
When he’s not working, Gio’s wrangling his four young kids, riding his motorcycle, and supporting education, families, and the homeless in the Charlotte community.