A Guide to Financial Background Checks

Financial background checks are critical to pre-employment screening, especially in industries where employees will handle sensitive financial information and assets. These checks assess a candidate’s financial responsibility, revealing histories of bankruptcies, court judgments, or economic mismanagement.

Financial background checks help employers make informed hiring decisions and ensure the integrity and stability of their workforce by providing a comprehensive view of a candidate’s financial history. This guide will detail financial background checks, why they are essential, and how to conduct them effectively.

What Is a Financial Background Check?

A financial background check, also known as a financial integrity check, is an essential part of the pre-employment vetting process. The check provides insights into a candidate’s economic history, revealing bankruptcies, decrees, and sequestration orders from the past six years. 

These checks help employers assess a candidate’s financial responsibility and suitability for financial management roles or access to sensitive financial information.

They’re crucial for various reasons. Firstly, they ensure regulatory compliance, as some industries require an assessment of an individual’s economic standing as part of legal or regulatory standards. Such compliance helps employers meet industry standards and avoid legal repercussions. 

Secondly, financial background checks help mitigate risks by identifying potential financial misconduct, such as fraud or embezzlement, protecting the organization from monetary losses and reputational damage. Thirdly, a candidate’s credit history can indicate their level of economic responsibility, which is particularly important for roles that involve managing company finances or handling sensitive financial data.

A comprehensive check typically includes several key components. Credit checks review publicly available records such as bankruptcy filings, providing insights into the candidate’s credit management, including credit-to-debt ratio, tax liens, and collection accounts. 

Criminal background checks reveal any criminal history related to financial misconduct, ensuring the candidate has no history of economic crimes. Employment verification confirms the candidate’s previous employment details, ensuring their professional history aligns with their resume. International financial integrity checks provide a consistent screening approach for candidates who have lived and worked overseas by drawing on international information sources to reveal their economic standing.

The civil screening process involves several steps. HR departments begin by selecting the required checks based on the role’s responsibilities, ranging from credit checks to criminal record checks. Candidates then receive an online screening form and must authorize the screening process. 

They’re only asked to provide information relevant to the specific job requirements. Once the screening form is returned, the background check provider verifies the information provided by the candidate, which may involve additional questions to confirm details. Finally, a report is generated and provided to the employer, allowing them to make informed hiring decisions.

Employers in the economic services industry must comply with various laws and regulations, such as the Fair Credit Reporting Act (FCRA), the Federal Deposit Insurance Act (FDIA), and the Gramm-Leach-Bliley Act (GLBA). These regulations ensure consumer data protection and maintain institutions’ integrity.

Employers must follow specific guidelines for conducting background checks, including obtaining candidate consent and providing necessary disclosures.

Background checks are critical for employers, particularly in the financial services industry. They help ensure regulatory compliance, mitigate risks, and assess a candidate’s economic responsibility. By incorporating these checks into the hiring process, employers can make informed decisions and build a trustworthy, responsible workforce.

What Does a Financial Background Check Consist Of?

Financial background checks are a comprehensive evaluation of a candidate’s monetary history, which is crucial for roles involving monetary management or access to sensitive financial data. It helps employers assess the economic responsibility and integrity of potential hires. 

Here are the critical components:

• Review publicly available records such as bankruptcy filings and orders.
• Assess credit management details, including credit-to-debt ratio, tax liens, and bankruptcies.
• Ensure the check does not impact the candidate’s credit score, leaving only a “soft footprint.”

Why Are Background Checks in Financial Institutions So Important?

Ensuring Financial Responsibility

Employees in financial institutions often handle significant amounts of money and sensitive information. Conducting background checks helps ensure that candidates have demonstrated economic responsibility in their personal and professional lives. It reduces the risk of economic mismanagement, fraud, or embezzlement, which can have severe consequences for the institution and its clients.

Mitigating Regulatory and Compliance Risks

Financial institutions are subject to strict regulatory requirements. They must comply with various laws and regulations, such as the Fair Credit Reporting Act (FCRA) and the Federal Deposit Insurance Act (FDIA). 

Background checks help ensure that candidates meet these regulatory standards and do not have disqualifying criminal convictions or financial issues. Such compliance is essential for maintaining the institution’s legal standing and avoiding costly fines and penalties.

Protecting the Institution’s Reputation

A financial institution’s reputation is critical to its success. Hiring individuals with a clean background and high integrity helps maintain trust with clients, investors, and the public. Background checks help identify potential red flags in a candidate’s history that could harm the institution’s reputation if they were to engage in unethical or illegal activities.

Enhancing Decision-Making in Hiring

Thorough background checks provide a comprehensive view of a candidate’s history, qualifications, and character. Such information is invaluable for making informed hiring decisions. It ensures that the institution hires individuals who are not only qualified but also align with its values and standards. The process contributes to building a competent and trustworthy workforce.

Preventing Internal Fraud and Theft

Internal fraud and theft can be significant risks in financial institutions. By conducting detailed background checks, employers can identify candidates with a history of dishonest behavior or financial misconduct. A proactive approach helps prevent fraud and theft incidents, safeguarding the institution’s assets and maintaining operational integrity.

What Should Employers Look For in a Financial Background Check?

Employers should focus on several key areas when conducting a financial background check to ensure they make informed hiring decisions. Each location provides valuable insights into a candidate’s economic history and overall responsibility.

A comprehensive review of the candidate’s credit history is essential. The review includes examining their credit report for any indications of financial distress, such as high levels of debt, frequent late payments, or collection accounts. A stable credit history suggests that the candidate manages their finances responsibly, which is crucial for roles involving financial responsibilities.

Employers should look for any history of bankruptcies, which can be a red flag for financial instability. Understanding the context and timing of bankruptcy filings can provide insights into the candidate’s economic decision-making and whether they have learned from past financial challenges.

It’s essential to check for any involvement in lawsuits related to financial disputes. This process can reveal potential patterns of financial irresponsibility or legal issues that could impact the candidate’s suitability for a role in a financial institution.

Verifying the candidate’s previous employment history is crucial. The verification includes confirming job titles, responsibilities, and dates of employment. It helps ensure that the candidate’s experience aligns with their resume and that they have a stable employment history in relevant roles.

Employers should verify that the candidate holds professional licenses for positions requiring specific permits, such as financial advisors or accountants. Such verification ensures compliance with industry regulations and standards.

They may also opt to conduct a criminal record check, which is essential to identify past convictions related to financial crimes, such as fraud or embezzlement. It helps mitigate the risk of hiring individuals threatening the institution’s integrity and security.

Employers should check if the candidate is listed on regulatory exclusion lists, such as the Office of the Comptroller of the Currency (OCC) list. Being on such a list could mean the candidate is barred from working in financial institutions due to previous misconduct.

For candidates with international experience, checking global watchlists can reveal any sanctions or legal issues in other countries. It’s particularly important for roles that involve international financial transactions or responsibilities.

Maintaining Compliance During Finance Background Checks

Financial Services Background Check Laws

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) regulates how employers conduct background checks through consumer reporting agencies (CRAs). Under the FCRA, employers must provide written notice to candidates before conducting a background check and obtain their consent. 

Additionally, suppose adverse action is taken based on the background check results. In that case, the employer must follow the adverse action process, which includes providing the candidate with a copy of the report and a summary of their rights.

Federal Deposit Insurance Act (FDIA), Section 19

Section 19 of the Federal Deposit Insurance Act (FDIA) prohibits individuals convicted of certain criminal offenses from working in FDIC-insured financial institutions unless they obtain prior written consent from the FDIC. 

These offenses include money laundering, breach of trust, and dishonesty. Employers must conduct criminal background checks to ensure compliance with this regulation.

Gramm-Leach-Bliley Act (GLBA)

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to protect consumers’ sensitive data. Compliance with the GLBA involves performing thorough background checks on employees who will handle this data.

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

The Dodd-Frank Act imposes various regulations on the financial services industry to protect consumers and enhance transparency. When an employer conducts a credit check under the Dodd-Frank Act, they must disclose specific information to the candidate, such as the credit score used, how they considered it, and the CRA that provided it. Such transparency ensures that candidates understand how their credit information impacts hiring decisions.

Office of the Comptroller of the Currency (OCC) Regulations

The OCC maintains a list of individuals banned from working in the financial services industry due to prior misconduct. Employers must check this list as part of their background screening process to ensure compliance with regulatory requirements and avoid hiring individuals with a history of financial misconduct.

Final Thoughts

Understanding and implementing financial background checks is critical for employers, especially within financial institutions. These checks offer comprehensive insights into a candidate’s financial responsibility, legal standing, and suitability for handling sensitive financial information.

For employers looking to streamline their background screening process and ensure thorough, reliable checks, look no further than ScoutLogic’s background screening services.

David Garcia

David Garcia, co-founder and CEO of Scout Logic, is an industry leader in the bulk background check world. With his strategic acumen and expertise in the HR sphere, specifically in hiring, recruiting, legal compliance, background checks, and resume screening, he’s an invaluable asset and consultant.

David's counsel extends across the boards of ScoutLogic, YipitData, and Supplier.io, drawing from his impactful stints on the boards of Infutor and Avetta. With an extensive 25-year journey, he champions unparalleled B2B commercial leadership within data & analytics, significantly shaping the HR landscape.