Rooting out “Rolling Bad Apples” – Mandatory Reference Checking Scheme

1. Hong Kong’s positions in the Global Financial Centres Index and competitiveness rankings have once again been re-affirmed recently, reflecting confidence in Hong Kong’s financial industry. This trust is built upon nearly 100,000 local banking practitioners who provide a wide range of financial services.  Among which, the conduct and integrity of frontline bank staff are particularly important, given the deep reach of branch networks of 20 retail banks into the community and frontline staff’s daily interactions with the public.
2. Since 2017, the HKMA has been encouraging banks to promote a sound bank culture through three pillars: governance, incentive systems, and assessment and feedback mechanism. Nevertheless, we realise that, in reality, there are still from time to time individual staff who damage the interests of customers for their own benefit.
3. As the saying goes, “One bad apple spoils the barrel”. If these “bad apples”, who have engaged in misconduct, are able to “roll” from one bank to another without disclosing their misconduct records to their new employers and repeat their misconduct, they will not only inflict harm on the individual bank, but also lead to the risk of misconduct permeating throughout the industry.  One “bad apple” can tarnish the reputation of the entire industry. Once the foundation of trust in the banking industry is eroded by these “bad apples”, public trust in the banking system will be undermined.
4. International financial regulators have been paying attention to discussions on addressing the above issue. The Financial Stability Board has also published a report which provides a toolkit on strengthening the governance frameworks to mitigate misconduct risk, in particular tools to address the so-called “Rolling Bad Apples” phenomenon.¹  The HKMA has been actively participating in the work of the international financial regulators and is well aware that this matter can hardly be dealt with by individual banks alone.  Instead, the industry needs to work together to effectively tackle the issue and prevent “bad apples” from inflicting harm on the industry.
5. Indeed, the Hong Kong banking industry had experienced difficulties in sharing employees’ conduct-related information across institutions in the past. Even if a former employer was aware of issues which may cast doubts on its staff’s integrity, or even violations of professional or internal codes, the bank was unable to provide this information to other banks due to incomplete investigations or privacy restrictions, allowing these “bad apples” to take advantage of the situation.
6. Taking into account the latest financial regulatory developments in different jurisdictions and industry situation, the HKMA launched an industry consultation in 2020 and published the operational framework of the “Mandatory Reference Checking Scheme” (the Scheme) in 2021. Under the Scheme, all banks can obtain and share relevant conduct-related reference information of prospective employees in the past seven years through a common protocol, so that the recruiting institutions can make more informed employment decisions.  Meanwhile, to ensure transparent and fair treatment to the prospective employees, they will be provided with an opportunity to be heard in case of any negative information received by the recruiting institution before making a hiring decision.
7. As promoted by the HKMA and the industry associations, Phase 1 of the Scheme was launched in May 2023, covering approximately 3,500 senior staff of banks. Following the launch of the Scheme, around 700 reference checks have been conducted by banks under the Scheme, of which only nine involved negative information.  The figure is small (accounting for about 1% of the total) but very meaningful, demonstrating that potential “bad apples” can be identified under the Scheme, thereby preventing bank staff from concealing their misconduct records when changing jobs.
8. Looking ahead, Phase 2 of the Scheme will be implemented on 30 September 2025, with an expanded scope to cover a total of approximately 50,000 staff members, including those who are licensed or registered to carry out securities, insurance or Mandatory Provident Fund regulated activities, accounting for more than half of the total number of banking practitioners.
9. Banks are currently carrying out preparation work for a smooth implementation of Phase 2, including communicating with their bank staff to be covered in Phase 2 and relevant stakeholders, updating their internal recruitment processes, and providing staff training.
10. As for staff covered under the Scheme, the implementation of the Scheme will enable banks to conduct reference checking more effectively, which will in turn help them make hiring decisions with greater confidence and enhance the confidence of customers and the society as a whole in the banking industry.
11. Moreover, we will explore with fellow regulators on possible expansion of the Scheme to other financial sectors, with a view to jointly addressing the phenomenon of practitioners with misconduct moving around within the financial services industry. I hope that the implementation and expansion of the Scheme can root out “bad apples” from the financial system, promoting the sustainable development of Hong Kong’s financial industry, while also strengthening public confidence in the industry’s conduct and its fair treatment of customers.

Arthur Yuen
Deputy Chief Executive
Hong Kong Monetary Authority

24 July 2025