DISCRIMINATION IN EMPLOYMENT ON THE
BASIS OF CRIMINAL
RECORD
Click here to access:
Submission No. 61 - International
Banks and Securities Association of Australia
Submission provided by: Duncan Fairweather, Executive
Director
11 March 2005
Mr Stephen Duffield
Director Human Rights Unit
Human Rights and Equal Opportunity Commission
GPO Box 5218
Sydney NSW 2001
Dear Mr Duffield
Discrimination in employment on the basis of criminal record
Thank you for the opportunity to comment on the Discussion Paper on
Discrimination in Employment on the Basis of Criminal Record.
IBSA is the representative body for investment banks in Australia .
As employers, IBSA members support the principle of fostering equality
of opportunity in employment and do not wish to discriminate against
any employee on any grounds. However, as registered corporations and
licensed providers of financial services, our members also have obligations
under law and by regulation that require them to take a potential employee's
criminal record into account and may mitigate against them being employed.
As providers of financial products and services, IBSA members have an
obligation under Australian corporations law to do all things necessary
to ensure that the financial services covered by their Australian Financial
Services (AFS) licence are provided efficiently, honestly, and fairly.[1] In
particular AFS licensees are responsible for the conduct of their employees.[2]
The policy rationale for this is to protect customers, promote investor
confidence and hence ensure vibrant Australian financial markets.
Most IBSA members are branches of foreign banks, which mean they operate
on a global basis and apply global employment policies under the direction
of the parent bank, reflecting legal requirements in their home jurisdiction
and international standards. As a result our members in Australia could
also have existing international obligations that may prevent the recruitment
of certain persons with criminal records.
Financial institutions hold a position of trust in the community and
must uphold their reputation in all areas of their business. This means
that the financial institution must rely on the honesty of its staff
and thus may have a preference for employees without criminal records.
In view of these special factors, IBSA members need to be able to take
criminal records into account when assessing the suitability of prospective
employees.
Global organisations
Most IBSA members operate on a global basis, whether as a branch or
subsidiary in Australia with a foreign parent company, or as an Australian-owned
entity with a branch network overseas. For IBSA member branches with
foreign parents, company policy is usually dictated by the parent company
and applied worldwide.
An example of this in relation to employment is one member's pre-employment
screening guidance issued globally. The guidance states that the business
unit should seek specialist advice from the company's Employee Relations
division in the case of a positive criminal check. This ensures that
the company policy on criminal checks is applied on a consistent basis - namely,
to assess the employment application on a case by case basis, not to
automatically rule out a candidate with a criminal conviction, and for
the criminal record to be considered as one aspect only of the decision-making
process.
In other instances the foreign parent company may have an employment
policy that must be consistent with the laws of the home regulator. For
example the Financial Services Authority in the UK[3] requires fit and
proper tests[4] to be applied to certain employees of the entities that
it regulates. A British bank branch in Australia whose parent company
in the UK is regulated by the FSA would therefore be subject to the FSA's
fit and proper tests.
Among other things a key criteria under the FSA's minimum standards
for determining the fitness and propriety of an approved person is their
honesty, integrity and reputation. In considering whether an approved
person meets this criteria, the FSA will give regard to matters including
whether a person has a criminal record. The FSA does not automatically
disqualify persons with criminal records from becoming an approved person.
It will assess on a case-by-case basis and look at whether the person's
reputation might have an adverse impact on the person's responsibilities
and on the company.
Reputation risk
IBSA members as financial institutions hold a particular position of
trust in the community because they safeguard and manage the community's
money - in turn they must have absolute trust in their employees. Most
employees have responsibilities that would require lack of a criminal
record and duties that are not compatible with a criminal record. Among
other things these could include the management of retirement incomes,
handling of cash, access to customer bank accounts, and the undertaking
of large volumes of trading transactions on global financial markets.
Concern about reputation risk applies across the full spectrum of employment,
from a junior analyst to a managing director. Any doubts about the capacity
to be trusted cannot be overlooked at any level of recruitment given
the career mobility within financial institutions and the potential for
promotion to responsible positions. This is particularly relevant in
global institutions where staff hired in one jurisdiction could be transferred
to another.
Existing obligations
Corporations Act - general
IBSA members that are registered in Australia as companies are subject
to the Corporations Act that will require them to have regard to an employee's
criminal record. For example there are circumstances under which a person
will be automatically disqualified from managing a corporation.[5] These
include where a person has been convicted of a contravention of the Act
punishable by imprisonment greater than 12 months.
As the administrator of corporations law, the Australian Securities
and Investments Commission (ASIC) has a Banned and Disqualified Register
that lists people who have been disqualified from involvement in the
management of a corporation or banned from practising in the financial
services industry.
Corporations Act - Chapter 7 (Financial Services Reform
Act)
As Australian Financial Services licensees, IBSA members have obligations
under the Financial Services Reform (FSR) Act relating to their competency
to provide the financial products and services for which they are licensed
by ASIC. In assessing whether a licensee has the requisite competency
to meet these obligations, ASIC considers the licensee's responsible
officers to be the people the licensee would depend on for its organisational
competency. The responsible officer therefore must have the experience
and expertise to ensure that the financial services to be covered by
the AFS licence will be provided honestly, efficiently and fairly.
Responsible officers, according to ASIC, are those:
- directly responsible for significant day-to-day business decisions
about the ongoing provision of financial services;
- of good fame and
character; and
- with the qualifications and experience to meet the
criteria under ASIC Policy Statement 164 Licensing: Organisational
capacities.
In order for an employee nominated as a responsible officer to be accepted
by ASIC, an Australian Federal Police check not more than twelve months
old is required, as well as a Statement of Personal Information signed
by the responsible officer, who must attest, among other things, that
they have not 'been the subject of any findings, judgment or current
proceeding, including findings, in relation to fraud, misrepresentation
or dishonesty, in any administrative, civil or criminal proceedings in
any country'.[6]
Responsible officers who have never lived in Australia still require
a criminal history check not more than twelve months old, from the countries
in which they have lived in the past ten years (and if applicable each
state in which they have lived in the United States).
Prudential fit and proper tests
IBSA members that are authorised deposit-taking institutions (ADIs)
are also subject to prudential supervision by the Australian Prudential
Regulation Authority (APRA). Financial institutions regulated by APRA
are subject to prudential standards, including fit and proper tests for
responsible persons.[7] A fit and proper test is currently applied at
the time a banking licence is issued. In future, under new fit and proper
rules proposed by APRA, checks will be made on directors and senior management
on an ongoing basis.
The fit and proper tests operate under a framework intended to reduce
the risk of loss to beneficiaries due to mismanagement and misconduct
in ADIs and explain APRA's minimum expected standards that persons who
manage APRA-regulated financial institutions must meet. APRA's fit and
proper rules are in accordance with the Core Principles for Effective
Banking Supervision issued by the Basel Committee (Bank for International
Settlements) and they are also consistent with best practice internationally,
eg the Financial Services Authority (FSA) in the UK has a fit and proper
test applicable to regulated entities.
Among the criteria under the proposed APRA fit and proper tests is whether
the person 'was the subject of civil and criminal proceedings, or enforcement
action, in relation to the management of an entity or commercial or professional
activities, which were determined adversely to the person (including
by the person consenting to an order or direction, or giving an undertaking,
not to engage in unlawful or improper conduct), and which reflected adversely
on their competence, diligence, judgment, honesty, or integrity'.
Concluding remarks
We are grateful for the opportunity to comment on the discussion paper.
Should you wish to discuss any aspects of our submission further, please
do not hesitate to contact me on 02 9221 8144.
Yours sincerely
Duncan Fairweather
Executive Director
1. Section 912A(1)(a) of the Corporations Act
2. Section
912A(1)(ca) of the Corporations Act states that a financial services licensee
must take reasonable steps to ensure that its representatives comply with the
financial services laws.
3. The FSA regulates financial services markets, exchanges and companies in
the UK , including banks and investment business
4. FIT 2.1 The Fit and Proper
test for Approved Persons, FSA Handbook.
5. Part 2D.6 Disqualification from managing corporations
6. Appendix A, Statement
of Personal Information, ASIC Form FS20
7. As defined in the draft APRA Prudential
Standard APS 520 Fit and Proper for ADIs - includes directors, senior managers
and auditors of the ADI.
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