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Staff Recruitment and Operational Risk 9 May 2006

As the financial services industry has become increasingly vigilant against money laundering and financial crime, news reports are suggesting that criminals may be turning to trying to obtain jobs in the industry, or to suborn existing staff.

In February 2006, the FSA published a report “Firms’ High-Level Management of Fraud Risk” and a press release on this subject. The press release noted: “Insider fraud - whether arising from collusion, coercion, infiltration or existing employee action - was cited by firms as one of the most serious threats. The most common example offered by firms was incidents of staff being approached outside work and offered money to sell confidential information.

The Commission has for some years vetted controllers, directors and senior staff. However, this does not remove the need for good recruitment practice by the industry. Licenceholders should note:

  • the Commission’s checks are limited to senior posts and it would not be appropriate (or practical) to extend that function to cover all staff;
  • the Commission endeavours to take a consistent view of the relevance and possible fitness and propriety consequences of any information that is disclosed to or discovered by it. This view might not necessarily match the view of an individual employer. The Commission’s approach is summarised in its General Licensing Policy, which has recently been updated;
  • the Commission’s ability to share information with employers is (properly) limited, because of the statutory remit within which it operates, including its duties of confidentiality and the human and data protection rights of employees or potential employees; and
  • Licenceholders are better placed than the Commission to assess the risks to their organisation attached to a particular post and to approach their pre-employment procedures accordingly.

Further reading:

The FSA press release and link to the FSA report “Firms’ High-Level Management of Fraud Risk”:
http://www.fsa.gov.uk/pages/Library/Communication/PR/2006/014.shtml

British Standards Institution, announcement concerning BS 7858:2004 “Security screening of individuals employed in a security environment”:

Article “Guess who” from CIR [Continuity Insurance & Risk] Magazine, July 2005:

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