Banks Have Special Obligation to Perform Background Checks when Hiring

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Written By ESR News Blog Editor Thomas Ahearn

Banks and financial entities have a special obligation to exercise care when hiring due to regulations and the need to maintain a workforce that clients will trust. To help with this task, Attorney Lester Rosen, founder and CEO of Employment Screening Resources (ESR), will present a Greg Souther Bank Webinar titled “Who is Your Bank Hiring: Trends, Legal Developments and Regulatory Obligations for Employment Background Checks” on Tuesday, November 17, 2015 from 2 PM to 4 PM Eastern Time (11AM to 1 PM Pacific Time).

Banks and regulated financial entities need to avoid hiring the wrong person as well as the legal and financial troubles that can result from a “bad hire.” Without taking appropriate steps to know who they are hiring with background checks, banks and other financial services providers face a near statistical certainty that they will hire someone with an unsuitable criminal record or a falsified background that can lead to workplace violence, lawsuits for negligent hiring, and time wasted recruiting and hiring the wrong person.

In the two hour long webinar, Rosen will examine the special statuary and fiduciary duty that banks and financial institutions have when performing background checks. Specifically, banks need to understand the Federal Deposit Insurance Corporation (FDIC) Regulations Section 19 Requirements that do not allow any FDIC-insured financial institution to hire anyone that has been convicted or entered into a pre-trial diversion for a crime involving “dishonesty” or “breach of trust” unless there is prior written consent from the FDIC.

  • “Dishonesty” is defined as “directly or indirectly to cheat or defraud; to cheat or defraud for monetary gain or its equivalent; or wrongfully to take property lawfully belonging to another in violation of any criminal statute.” FDIC Statement of Policy for Section 19 of the FDI Act, 63 Fed. Reg. 66,177, 66,185 (1998). See FIL 125-98 Dec. 1998).
  • “Breach of trust” is defined as “a wrongful act, use, misappropriation, or omission with respect to any property or fund which has been committed to a person in a fiduciary or official capacity, or the misuse of one’s official or fiduciary position to engage in a wrongful act, misappropriation or omission.” Id.

Banks are precluded from allowing persons subject to Section 19 to engage in conduct or relationships Section 19 prohibits. The penalty that may be imposed upon banks or individuals for violating Section 19 is a fine of $ 1,000,000 for each day the violation continues or imprisonment for not more than five years or both. Section 19 requirements prohibit both misdemeanor and felony convictions, and pre-trial diversion programs related to the criminal offense. An application to the FDIC is required for most exceptions to Section 19 requirements.

However, the FDIC instituted a “de minimis” exception in 2012 that does not does not require an application if:

  • There is only one conviction or pre-trial diversion program on record for a covered offense;
  • The offense was punishable by: a) Imprisonment for a term of less than one year, and/or; b) A fine of less than $2,500.00 and the individual served 3 days or less in jail;
  • The conviction or pre-trial diversion program was entered at least five years prior to the date of the application; and
  • The offense did not involve an insured depository institution or insured credit union.

The Financial Industry Regulatory Authority (FINRA) has rules that cover every member of a national securities exchange, broker, dealer, registered transfer agent, and registered clearing agency. FINRA Rule 3110(e) took effect July 1, 2015, and is based on similar provisions in National Association of Securities Dealers (NASD) Rule 3010(e) and New York Stock Exchange (NYSE Rule 345.11). The rule introduces a new requirement to search national public records to verify information in the Form U4 (Uniform Application for Securities Industry Registration or Transfer). A broker check can be conducted at http://www.finra.org/.

Other rules for banks and financial institutions covered by Rosen, author of “The Safe Hiring Manual,” the first comprehensive guide to background checks, include:

  • The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) is part of the Federal Housing and Economic Recovery Act of 2008. The S.A.F.E. Act regulates the licensure of loan originators and the utilization of a national registry called the Nationwide Mortgage Licensing System.
  • The National Credit Union Administration (NCUA) is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 90 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. Section 205(d) has restrictions for certain criminal acts.

In addition, Rosen will also cover a variety of other topics in the webinar including:

  • The “Ban the Box” movement.
  • The U.S. Equal Employment Opportunity Commission (EEOC) approach to the use of criminal records.
  • The rise in class action lawsuits involving the federal Fair Credit Reporting Act (FCRA).
  • “Offshoring” of personal data used in background checks outside the U.S.
  • Use of social media in background checks.
  • International background checks.
  • The explosion in false education and employment credentials.
  • How to select a screening firm.

1997, Rosen founded Employment Screening Resources (ESR), a nationwide background check firm located in California and accredited by the National Association of Professional Background Screeners (NAPBS). He was the chairperson of the steering committee that founded the NAPBS and served as the first co-chairman in 2004. He is a frequent presenter on safe hiring issues and has consulted with many of the largest financial institutions in the United States. He has testified in California, Florida, and Arkansas Superior Courts as an expert witness on due diligence. His speaking appearances include numerous national and statewide conferences.

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ESR SOC 2 Report

Employment Screening Resources® (ESR) “The Background Check Authority®” has announced the successful completion of the 2015 SOC 2 Type 2 Data Security Audit. The Service Organization Control (SOC) 2® audit ensures that ESR meets high standards set by the American Institute of Certified Public Accountants (AICPA) for protecting the security, confidentiality, and privacy of  personal data used for background checks. To learn more, visit http://www.esrcheck.com/SOC-2/.

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