Financial Services Background Checks: A Complete Guide for Employers [2023] (2024)

Due to heightened security needs and complex financial regulations, financial institutions must carefully choose who is qualified to handle company and customers’ confidential information and financial resources.

Knowing the identity and background of who you are hiring is imperative.

To ensure you hire trustworthy employees, you should always run a financial services background check on all applicants and check the candidates against key sanctions and watch lists.

Doing so will protect sensitive data and ensure compliance by limiting the risk of theft or other financial crimes against your company.

This is especially true for employees who will be working in a bank.

If you are looking to hire a new employee, read this complete guide on background checks for financial institutions, including banks, credit unions, and more.

In this guide, you will learn how to conduct a background check, how to determine if an individual can and should be hired, and how to stay compliant during the background screening process.

Why Are Financial Services Background Checks Important?

Financial institutions must ensure the candidates they hire are trustworthy, honest, and safe.

They must also make certain that their new hires have the right qualifications and experience to handle the duties of their jobs.

Financial services employees routinely access sensitive information about their employers and their customers as well as their employer’s cash.

Failing to conduct a financial services background check could result in losses caused by embezzlement, identity theft, and negligent hiring liability.

Financial services background checks help to enhance the integrity and trust of the organization and its employees. These checks are often stricter than the screens performed in other industries because of regulatory requirements.

Performing a financial services background check provides the following benefits:

• Maintenance of regulatory compliance
• Protection of customers’ privacy
• Reduction of crime risk
• Improved workplace safety
• Increased employee morale
• Protection of the organization’s brand

What Do Banks Look for in a Background Check?

Because of the access that employees have to consumers’ sensitive information and the financial institution’s money, most banks request the following types of searches:

• Criminal background search
• Employment history
• Education history
• Credit history
• Identity verification
• Domestic Terrorist Watch list search

Let’s take a look at what might appear on a few of these reports.

Criminal Background Check

If an applicant has a criminal record, the following information will appear about the conviction(s) on a criminal background check:

• Offense date
• Nature of the offense
• Offense severity (felony/misdemeanor)
• Disposition
• Date of the disposition
• Sentence information might be reported

Expunged or sealed records will not be reported.

Employment Verification

Employment verification will reveal the following information about each of an applicant’s past jobs:

• Employer’s name and address
• Employment dates
• Titles/positions held

Education Verification

Verifying your applicants’ claimed education can ensure they have the qualifications necessary to perform their jobs.

Education verification will report the following data about an applicant’s educational history:

• Each attended institution’s name, address, and location
• Attendance dates
• Degrees, certifications, or diplomas conferred

Credit History

While credit checks are prohibited for employers in some states, financial services employers are generally exempted from these prohibitions.

On a credit history search, you will see the following types of information:

• Late or missing payments
• Collection accounts
• Foreclosures
• Repossessions
• Creditor judgments
• Defaulted loans

Civil Court Search

Financial institutions sometimes request civil court checks as a part of their pre-employment screens.

Some types of civil lawsuits and judgments could be relevant because of the access that employees will have to sensitive customer and institution data.

International Check

Candidates who have lived and worked in other countries should receive international background checks.

Regular domestic background checks might not find relevant information about candidates originating from outside the U.S.

Office of the Comptroller of Currency (OCC) Enforcement List

The U.S. Office of the Comptroller of the Currency (OCC) is an independent bureau housed within the U.S. Department of the Treasury that regulates and supervises U.S. banks, federal savings loan associations, and federal branches of foreign banks.

The OCC takes enforcement actions against banks, financial institutions, and their employees, including directors and officers.

An OCC check involves searching the bureau’s enforcement action list to check for bans from working in the financial service industry.

Bank Background Check Requirements: What Disqualifies You From Working at a Bank?

Generally, if an applicant’s background check report shows any financial-related crimes, they are automatically disqualified from working at a bank or financial institution.

Most banks in the United States are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC regulates who banks can hire. These regulations are laid out in Section 19 of the Federal Deposit Insurance Act.

According to Section 19, banks cannot hire an individual who has been convicted of a criminal offense that involved “dishonesty or breach of trust or money laundering.”

Even more, if an individual has entered a diversion program in connection with a prosecution of a crime in the above category, they cannot be hired.

By utilizing a financial background check for employment, employers can determine if an applicant meets the FDIC bank background check requirements.

How to Run a Financial Background Check

While background checks are beneficial for all companies, it is imperative that banks and financial institutions obtain the most accurate information on every potential employee.

By partnering with a third-party background screening company such as iprospectcheck, you will be able to receive all the information you need quickly.

If you are interested in gathering background check information yourself, it is possible.

However, it will not only take time and resources to gather all the information you need–thoroughly checking court records, county criminal records, and nationwide databases–but there are some records that are not easily accessible by the public.

Partnering with an experienced background check company will save you time and money and ensure you stay compliant throughout the entire pre-employment screening process.

At iprospectcheck, we understand the strict accountability and complex regulations the financial industry must follow to maintain compliance with the Patriot Act, Sarbanes-Oxley Act, and Federal Deposit Insurance Corporation requirements, along with the United States Financial Crimes Enforcement Network “Know Your Customer” due diligence requirements.

How to Stay Compliant When Conducting a Financial Background Check

When you choose to partner with a third-party background check company, they can help you take the proper steps to stay compliant with the Fair Credit Reporting Act (FCRA), as well as state and local regulations when running background checks.

After you receive the background check report, as an employer, you will decide whether you will proceed with the hiring process.

If you decide to no longer hire the applicant due to information found on their background check report, you must take the required Adverse Action steps. These include:

1. Providing the applicant with a pre-adverse action letter, stating why you no longer intend to move forward with them in the hiring process.
2. Waiting a “Reasonable amount of time” (approximately five business days), thus giving the applicant a chance to revise or correct any false information found on their background check.
3. Making a final decision regarding an applicant’s employment.
4. Providing the applicant with an official adverse action letter if you decide to not hire the applicant for the job.
5. Including with each of the notifications a copy of the background report and a copy of the document “Summary of your rights under the FCRA”.

Due to the valuable nature of a financial services background check, it is highly recommended that you partner with a third-party background check company, such as iprospectcheck, to ensure you receive the information you need to make a smart hiring decision while staying compliant.

Financial Services Background Check Laws

All employers, including those in the financial services sector, must comply with relevant local, state, and federal background check laws when making hiring decisions.

Here are some of the most important laws you need to know.

Federal Background Check Laws

1. The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) governs both the types of information consumer reporting agencies (CRAs) can collect and report to employers and how you can use the information you obtain through background checks.

For positions paying less than $75,000 per year, CRAs can’t report the following types of information when it is more than seven years old:

• Arrests that didn’t result in convictions
• Bankruptcies
• Liens
• Civil lawsuits
• Civil judgments

These restrictions don’t apply to positions paying more than the minimum threshold salary of $75,000 per year.

The FCRA’s time limitations also don’t restrict conviction records, employment history, education history, and other key background information, which can be reported no matter when they occurred.

If you receive background information about an applicant that makes you want to reject their application, you must follow the FCRA’s adverse action process before making a final decision not to hire the applicant.

2. Title VII of the Civil Rights Act of 1964

Title VII of the 1964 Civil Rights Act (Title VII) prohibits workplace discrimination based on the protected characteristics of employees and applicants. The Equal Employment Opportunity Commission (EEOC) enforces this law.

Under Title VII, employers should individually assess convictions as they relate to the specific duties the applicant would perform before making a final decision against hiring.

3. Federal Deposit Insurance Act

The Federal Deposit Insurance Act (FDIA) places restrictions on the ability of financial services employers to hire applicants with the following types of convictions:

• Convictions involving a breach of trust or fiduciary duty
• Money laundering

There is a 10-year restriction on hiring applicants with convictions for the following types of convictions without prior written approval from the FDIC:

• Accepting gifts in exchange for procuring loans
• Misappropriating funds as a bank employee
• Embezzling FDIC-insured funds
• Making false bank entries
• Obtaining benefits through loans or transactions to defraud the federal government
• Forging documents to influence the FDIC
• Knowingly making false statements to influence the lending decisions of a federal agency
• Concealing assets from the FDIC while acting as a conservator
• Committing bank fraud
• Obstructing the government’s examination of a financial institution
• Unlawfully disclosing prohibited confidential information as a bank employee
• Illegally disclosing information from a bank examination report
• Concealing the proceeds of illegal activity
• Engaging in transactions involving property gained through illegal activity

However, a new rule that was final on Aug. 23, 2020, loosened some of the restrictions.

Under this rule, financial services employers will not have to seek prior approval when hiring applicants with these types of convictions under the following circ*mstances:

• All convictions that have been expunged or sealed
• One or two de minimus (minor) convictions
• No five-year waiting period after one de minimus conviction and only a three-year waiting period following a second de minimus conviction
• De minimus conviction threshold raised from $500 to $1,000 for thefts

4. Amendment to Sect. 19 of the Federal Deposit Insurance Act

President Joseph R. Biden signed H.R. 7776, which is the National Defense Authorization Act for FY 2023.

Among other things, this law contains essential amendments to Sect. 19 of the FDIA about background checks of applicants for positions with banks.

The law also includes similar changes for credit unions.

The amended Sect. 19 greatly narrows the types of offenses for which employers must seek approval from the FDIC before hiring an applicant.

It codifies certain aspects of the final rule under the FDIA, including the exclusion of sealed or expunged criminal records and the process by which employers can apply for waivers.

The amendment provides guidance to employers about what constitutes a crime of dishonesty and states that it is one in which an individual wrongfully takes property that belongs to another directly or indirectly through fraud or cheating.

Crimes of dishonesty also include offenses under local, state, or federal law that have an element of dishonesty, but they do not include misdemeanors or drug offenses.

As long as a conviction doesn’t include a statutory requirement that the individual is barred from working in the financial industry for 10 years, waivers won’t be necessary for applicants under the following circ*mstances:

• Seven years have elapsed since the offense, or five years have elapsed since the individual completed a sentence of incarceration
• The individual was younger than 21 at the time of the offense, and 30 months have elapsed

The amendments also specifically allow the FDIC to engage in additional rulemaking to expand the list of qualifying de minimus offenses when the rule includes the following criteria:

• The offense was punishable by three years or less, not including periods of probation or parole
• Insufficient check totals for bad checks in aggregate of $2,000 or less
• Exclude lesser offenses the FDIC might designate when at least 12 months have passed since the conviction was entered

In light of the changes to Sect. 19, employers should review their background check policies and modify them accordingly.

FAQs

1. How Long Do Financial Services Background Checks Take?

How long it might take you to conduct a financial services background check can vary based on the screening method you use.

If you try to do it yourself by requesting information from several agencies, former employers, educational institutions, and other information sources, it could take several weeks to compile a report.

Working with an experienced background check provider like iprospectcheck can greatly accelerate the process while still ensuring the information you receive complies with the FCRA, the FDIC, and other laws.

Our advanced technology and research methods frequently allow us to return complete, accurate, and current reports within a few hours.

2. How Far Back Does a Bank Background Check Go?

The Fair Credit Reporting Act regulates how far back a background check can go. The background screening industry guideline is seven years. A report cannot include any records of arrest which did not result in a conviction that are over seven years old.

However, convictions, no matter how old, can be reported under the FCRA guidelines without time restrictions.

One exception to this rule is the “Salary Cap” exemption. The FCRA restrictions do not apply where the annual salary of the applicant for employment may be expected to exceed $75,000 per year.

iprospectcheck is Your Trusted Financial Services Background Check Provider of Choice

As a financial institution looking to hire new employees, it is imperative that you conduct a financial services background check on every new applicant.

By partnering with iprospectcheck, you receive all-inclusive background check services with an emphasis on security to provide you with the most accurate, up-to-date information.

Schedule a free, no-obligation consultation today to learn more about how our services can help you make the right hire every time. Contact us today!

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.