The Employer’s Guide to Background Checks for Financial Services

Editor’s note: Nothing in Checkr’s Blog should be construed as legal advice, guidance, or counsel. Companies should consult their own legal counsel about their compliance responsibilities under the FCRA and applicable state and local laws. Checkr expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided.

It’s no secret that the financial industry is full of strict regulations to protect consumers and companies alike, and this extends to hiring practices as well. In recent years, regulations have only become stricter and as a result, it’s become increasingly difficult to navigate the hiring process. 

Employers hiring for roles in the financial services industry must comply with the latest laws and perform the necessary steps to protect both companies and consumers. Background checks for financial services helps ensure the industry retains integrity and protects companies from noncompliance. 

Here’s what you need to know about conducting financial services background checks.

The importance of background checks for financial services

Background checks are a crucial part of the hiring process for both employers and candidates. Employers want to have peace of mind knowing they’re hiring someone who has the right qualities and qualifications, while candidates want to feel supported throughout the interview process.

The purpose of background checks is to enhance trust and integrity. Of course, there is no such thing as a one-size-fits-all background check. Every industry has its specific requirements, as does every employer.

The financial services industry must carry out stricter checks than those in other industries, as employees in this sector handle finances and sensitive customer data. For example, an FDIC background check for bank positions will be much more extensive than background checks for a retail store.

When it comes to a financial services check, background information can help:

• Enhance regulatory compliance
• Protect customer privacy
• Improve workplace safety
• Create a cohesive team
• Reduce risk of crime 

What to look for in a background check for financial services

In terms of what employers are looking for in these background checks, the goal is ultimately the same as any other background check—gathering information to help an employer determine if this candidate is the right hire. A financial services background check  often looks at employment history, and education. Additionally, an employer may want  to check whether the candidate has criminal records. Note: if the candidate’s report shows convictions for financial crimes, they may be disqualified from working for banks or any financial institution. 

Employers may also choose to check a candidate’s credit history, although this isn’t as common. However, for financial services positions, it makes more sense to run a credit check than in other sectors (more on this later). If you decide to check a candidate’s credit history, you’ll receive a modified credit report. This report will not include personal information that could violate fair hiring practices, such as birth dates or marital status. 

Financial services background check: what to expect

Background checks for financial institutions will differ depending on the company and the role. However, most background checks for financial roles will follow a general outline, whether you’re hiring a CFO or a new teller for a bank. Check background information the right way to help support your company’s compliance needs and to ensure that candidates have a positive experience with your brand. Here’s what to expect when performing background checks for financial service jobs. 

You must provide notice to the candidate that a background check will be performed. This notice must be provided in writing and it is the candidate’s legal right to be notified before the check is carried out. Note that the candidate must consent to the background check in order to carry out the screening. 

Many standard background checks only look at criminal history. However, standard background checks may be unsuited to comply with the rigorous requirements of the financial services industry.

For example, a bank teller background check likely must go further than the screening of a retail associate. A background check that only looks for criminal records will not include civil judgments or lawsuits. Credit checks will not report on financial penalties, like foreclosures or bankruptcies. Within the financial services industry, this information could be more relevant.

Let’s run through the most important checks that go beyond the common criminal, employment and education background checks.

Civil court check

When performing a bank background check, an employer may want to conduct a civil court check because certain civil lawsuits could be relevant since financial industry employees will have access to highly sensitive information within the company and from customers.

Credit checks

For positions in the financial sector, it makes sense that a credit check would form part of a pre-hiring inspection. Doing so minimizes the risk of fraud, embezzlement, and other financial crimes.

Employers should consider whether a role involves handling large amounts of customer or company money and if a candidate’s credit check is relevant to the role. However, it’s important to note that at least ten states have prohibited employers from accessing credit checks and personal financial information except in limited circumstances:

• California
• Colorado
• Connecticut
• Hawaii
• Illinois
• Maryland
• Nevada
• Oregon
• Vermont
• Washington

Cities like New York, DC, Chicago and Philadelphia have also passed laws that restrict the ability of employers to use credit reports in the hiring process. It’s imperative that you and your counsel familiarize yourself with all local and state laws. 

Education and license verification

Employers within the financial sector typically require various licenses and certifications to practice. To mitigate legal risks and organizational damage, it may be important to ensure that your new accountant or financial advisor has the necessary licenses. Reference, education, and professional license verification are often included in a background check for financial services jobs. 

International screening

If your candidate has lived overseas, you may need to order an international screening for security purposes. Standard domestic screenings may not include information from outside the US.

Financial services background checks: FCRA & FDIC compliance

The Fair Credit Reporting Act (FCRA) has rules governing  how far back your background check can go.

The FDIC, since it insures the funds of depositors, dictates background checks to some extent. For example, Section 19 excludes individuals from the industry if they are convicted of certain crimes. 

The Office of the Comptroller of the Currency (OCC) website provides information to the banking community regarding individuals who have received lifetime bans from working within the financial services industry.

Since 1989, the OCC has continually published the names of persons who are under lifetime prohibition orders. Employers are obliged to comply with these lifetime bans, regardless of when someone was listed.

Ensure you, your counsel, and your entire organization are clear on the requirements set forth by the FDIC to maintain compliant.

If you perform a financial services background check and decide not to hire a candidate based on the results of the report, you must follow the Adverse Action steps:

• The applicant must be provided with a pre-adverse action letter detailing why you will not be moving forward with their application.
• You must wait a reasonable amount of time, commonly five business days, to allow the candidate to respond, revise, or correct incorrect or out of date  information.
• Make a final decision on whether to move forward with the candidate’s application.
• Provide a final adverse action letter if you decide not to hire the person for the job.
• You must include a copy of the document “Summary of your rights under the FCRA” and a copy of their background report

Following these steps is essential not only due to the regulations in place, but because it gives the candidate the right to make corrections and revisions.

Partnering with a third-party employee background check company like Checkr can help you run efficient checks. The rules and regulations surrounding background checks can be confusing, but you need to ensure you commit to fair hiring practices that support and protect candidates.

Frequently asked questions

Conducting a background check for financial services is more complex than performing a standard background check. To support fair hiring practices and compliance, it’s important to know the ins and outs of these types of background checks. Here are some of the most common questions we receive regarding financial services background checks.

How far back do banks do background checks?

Within the financial services industry, the same rule applies as in other sectors. The FCRA limits the reporting of non-convictions to seven years. For convictions, whether employers choose to look further back than seven years in these circumstances depends on the company’s policy and local and state laws. 

What disqualifies someone from working at a bank?

To reduce the chances of fraud, embezzlement, and money laundering across the industry, regulations have been tightened over the years.

Since those who work in the financial services sector are handling company money and the sensitive details of their customers, more extensive checks are required. 

Can a social media background check be incorporated into a financial services background check?

Should a bank or other financial institution  perform a background check into someone’s social media presence? While it is done, social media background checks should be avoided for many reasons, including the potential for discrimination lawsuits and for the potential of bias to enter the hiring process. 

Is drug screening necessary for working in the financial sector?

Drug testing may form part of pre-hiring checks, but they are certainly not necessary. Some argue for including them in roles where someone may be making major financial decisions with serious consequences for people’s money. While some institutions may decide to implement pre-employment drug testing, not all do. 

Should you delegate background checks to a third-party company?

While some institutions may choose to assume the responsibility of managing background checks themselves, there are significant benefits that come with partnering with a third-party background check company.

Not only can a background check company return your results faster, but they can also provide more comprehensive checks than most employers can manually. These companies support compliance with the FCRA, and can help reduce the burden of navigating the strict regulations in the finance industry.  

Background checks for financial services

The financial sector is one that comes with far more stringent requirements than other industries. Failing to conduct comprehensive background checks when required could have significant consequences, and employers should consider the right background check approach for their business.

Checkr supports candidates and helps support companies’ compliance needs.

Contact us to learn how Checkr’s background check services can elevate your hiring process today.