UBS AG and Barclays Plc have pulled job offers and delayed start dates as banks toughen background checks after scandals heightened scrutiny of individuals’ behavior, three people with knowledge of the situation said.
UBS withdrew a senior London-based hire’s contract this year after digging into personal misconduct he disclosed in background checks, according to one person, who asked not to be identified because it’s a private matter. The individual had worked at two other banks’ British offices, the person said. The nature of the behavior wasn’t specified.
Investment bank hiring in the U.K. “can take a great deal longer, especially for senior management, which is looked at very closely,” said Simon Morris, a London lawyer in CMS Cameron McKenna LLP’s financial services group. The time banks take preparing an application for a new hire to obtain regulatory authorization to work at a London bank “has tripled, quadrupled and quintupled. In the old days, it took a day.”
The moves show lenders aren’t just tightening controls on employees as legal costs spiral, they’re also taking closer looks at new hires to head off problems before they get in the door. From 2008 through the second quarter of this year, the 24 European banks with the biggest exposure have paid or set aside at least $119 billion in fines, settlements, consumer redress and provisions, according to data compiled by Bloomberg News.
Banks are also getting tougher when vetting existing employees for some jurisdictions where regulators may take a closer look before authorizing them to work there. In the U.S., the Financial Industry Regulatory Authority administers a six-hour examination of knowledge for sales and trading employees, and more senior staff undergo additional tests. On top of similar exams, British markets watchdog the Financial Conduct Authority also does thorough background checks, making London hiring more complicated for banks.
The FCA, UBS and Barclays officials declined to comment.
“Banks have been given relative autonomy to conduct checks themselves” before putting forward candidates for FCA approval, said Paul Jagdev, a manager for senior finance at recruitment firm Morgan McKinley in London. FCA guidelines call for checks on regulatory references, qualification certificates, credit, criminal and directorship history, he said.
The FCA and Prudential Regulation Authority, the British banking supervisor, are looking to tighten its standards even more. In July, they sought feedback on toughening assessments, including a certification process to “require relevant firms to assess the fitness and propriety of certain employees who could pose a risk of significant harm to the firm or any of its customers,” according to the consultation paper.
Barclays has delayed a senior staff member’s start date in its London fixed-income division amid queries into his background that arose while preparing his application for approval from the FCA to work in the U.K., two people familiar with the matter said. The individual had been working in the U.K. lender’s New York office for years, they said, declining to specify what the concerns were.
“The people aren’t crooks,” Morris, the London lawyer, said. In U.K. bank hiring now, there’s “an ultra-conservative view; it’s our version of puritanism and risk aversion.”
The banks’ caution pays off, as the FCA reported that between April 2013 and March 2014, it hasn’t refused any so-called approved-person applications though 264 were withdrawn by the firms “many after close scrutiny by the FCA,” according to its biannual report on the process.
“As ever, with well-meaning regulation, we run into the law of unintended consequences,” London-based executive-search firm Purcell & Co. Chief Executive Officer John Purcell said. “Employees need to be validated for experience and qualifications, but if the regulations are so overly onerous that it prevents or unreasonably delays the hiring of suitable people this is clearly counter-productive.”