The financial industry is built on trust. Whether it’s a bank managing your life savings or an investment firm advising on your portfolio, customers and businesses alike rely on employees to handle sensitive data and large sums of money responsibly. For HR professionals in the financial sector, conducting thorough background checks isn’t just a compliance requirement—it’s the foundation for maintaining trust and mitigating risk.
This blog uncovers why background checks are critical in the financial industry, what they typically involve, and how they help businesses remain competitive and compliant.
Why Background Checks Are Essential for the Financial Industry
The financial industry operates under intense regulatory scrutiny, and for good reason. Mishandled funds or data breaches can have catastrophic consequences. Background checks provide an essential layer of protection by ensuring that employees meet industry standards for trustworthiness and competence.
Here are some of the main reasons background checks are non-negotiable in this field:
1. Regulatory Compliance
Various regulatory bodies, such as the Securities and Exchange Commission (SEC) in the U.S. or the Financial Conduct Authority (FCA) in the U.K., mandate that financial institutions vet employees thoroughly. Non-compliance with these regulations can lead to hefty fines, reputational damage, and operational disruptions.
2. Fraud Prevention
According to PwC’s 2022 Global Economic Crime and Fraud Survey, 46% of global organizations experienced fraud in the last two years. The financial industry is particularly vulnerable to internal fraud. Employee background checks help identify potential red flags, such as criminal records or unexplained financial activity, before they escalate into costly mistakes.
3. Protecting Reputation
The reputation of a financial institution can take years to build but only moments to destroy. Negative publicity stemming from employee misconduct can erode customer trust and impact the organization’s bottom line. Background screening ensures that only reputable individuals join the company.
What Does a Background Check for the Financial Industry Include?
Comprehensive background checks in the financial industry are more rigorous than in many other sectors. Here’s what HR professionals typically examine:
1. Criminal Records Check
A criminal background check identifies any past convictions or legal issues that could disqualify a candidate from working in a highly regulated environment. It ensures that employees with a history of fraud, embezzlement, or identity theft are not entrusted with sensitive financial responsibilities.
2. Credit History
Checking a candidate’s credit report is standard practice in the financial sector. Poor credit history, bankruptcies, or consistent debt issues may raise concerns about a candidate’s ability to handle financial matters responsibly.
3. Employment Verification
Past employment records are thoroughly reviewed to ensure candidates have the experience and credentials they claim. This step also helps verify that there are no undisclosed gaps or terminations related to misconduct.
4. Education Verification
For roles requiring specific qualifications (e.g., accountants or data analysts), verifying educational achievements ensures that candidates meet the technical competencies required for the job.
5. Licensing and Certification Checks
For positions such as financial advisors, brokers, and accountants, HR professionals confirm that the candidate holds the required licenses or certifications that remain valid and free from suspensions or complaints.
6. Sanctions and Watchlist Screening
Candidates are screened against global sanctions lists, politically exposed persons (PEPs) lists, and other watchlists. This ensures compliance with anti-money laundering (AML) regulations and prevents inadvertently onboarding high-risk individuals.
Benefits of Conducting Thorough Background Checks
Implementing detailed background checks doesn’t just improve compliance—it also offers several tangible benefits for financial organizations:
1. Reduced Turnover and Training Costs
Hiring the wrong candidate can be costly. Background checks help HR professionals ensure that new hires are both qualified and stable, reducing the likelihood of quick turnover and the costs associated with repeated recruitment cycles.
2. Boosted Confidence Among Clients
Clients are more likely to trust a financial firm that visibly invests in due diligence for hiring. Promoting high hiring standards reassures clients that their assets and data are in safe hands.
3. Competitive Edge
Companies that prioritize background screening maintain higher operational standards and can market themselves as industry leaders in compliance and security. This competitive edge is critical for attracting both customers and top-tier talent.
How Background Checks Help Global Businesses
Financial institutions that operate globally face even greater challenges when it comes to compliance. Laws and regulations differ across borders, and identifying reputable candidates in diverse regions can be complex.
Global businesses benefit from background checks that accommodate international standards while respecting local customs and laws. Partnering with a trusted background check provider with a global reach is key to streamlining this process and ensuring consistent practices across regions.
Trust Begins with a Background Check
For HR professionals in the financial industry, comprehensive background checks are more than a best practice—they are a necessity. They ensure compliance with regulations, protect company reputations, and safeguard financial assets.
Plexus Global: Hire Safely With Knowledge
Plexus Global is a California-based background screening company serving organizations all over the U.S. and abroad.
Contact us today by telephone (844-516-1008), email (sales@plexusglobalinc.com), or through our social media accounts on Facebook, Twitter, and LinkedIn.
