Testing the integrity of directors and senior managers may prove cumbersome and time-consuming, writes Gabrielle Monaghan

Strict new rules governing the recruitment of directors and senior managers in the financial sector means the hiring process at financial services companies may prove more cumbersome and protracted than before.

At the start of this year, the Irish Financial Services Regulatory Authority introduced a so-called "fitness and probity" regime to ensure senior individuals in the sector have integrity and are competent and honest.

The process gives financial firms explicit responsibility for ensuring the people they hire are fit and proper for senior positions.

Job candidates for a range of positions within financial organisations, including chief executives, directors, executive-level managers, partners and compliance officers, will be tested on their fitness and probity.

Applicants for such positions now have to fill out a questionnaire and give details on their qualifications and relevant experience and disclose any financial and tax offences, previous bankruptcy and any disciplinary action by a professional body.

Anyone convicted of tax offences on indictment - in the Circuit Court or a higher court - will be banned from holding a position.

The financial regulator published the framework for this regime in November, following a two-year process and two public consultations in which it received 30 submissions.

AIB, Bank of Ireland and Ulster Bank had all lobbied the regulator in 2005 to drop key elements of the proposed tests.

The regulator had already set up an "authorisation department" designed to vet people seeking to work in the upper echelons of the financial services sector and to assess firms applying for permission to operate in the sector.

In 2005, it outlined plans to test the "fitness and probity" of some 10,000 directors and managers in Irish financial services firms.

The regulator said that in 2004, three people had been removed or prevented from taking up senior positions because they had not met these criteria.

Financial firms will now have to conduct checks on the information they receive from top job candidates through an individual questionnaire (IQ) to ensure the details are accurate.

This can take the form of getting references from former employers and confirming the validity of professional qualifications and professional association memberships.

However, the recruiting firm may also have to ask a proposed director for permission to carry out tax, police or credit agency checks.

"The biggest issue for the employer is verification of the information in the IQ form," says Bryan Dunne, partner in the employment, pensions and benefits group at law firm Matheson Ormsby Prentice. "When issues arise, such as financial crime or bankruptcy, the employer has to investigate that. That's the real difficulty.

"If you don't check the information given properly and the issue comes up again, the regulator will ask why you didn't know about it and will look more closely at you in future."

Most of the background checks and verification of qualifications and experience will fall to the human resources manager, Mr Dunne says, in a seminar aimed at helping financial firms comply with the new rules.

HR managers may have to check with the Revenue Commissioners to ensure the candidate has not defaulted on tax in the past or with foreign revenue departments if the applicant has worked abroad.

"If there are a lot of issues with the candidate, a HR manager could spend three to four days just digging around for information on the person," he says.

"The recruitment process can already take between two and three months, though I've seen the process run up to a year for senior people."

Mr Dunne recommends that financial firms make it clear to the candidate throughout the recruitment process that any personal information and history they give will be passed on to the regulator.

"Even the job description should state that the person will be hired subject to the regulator's approval," he says.

"The written job offer should also say it is subject to the financial regulator's approval and to background checks. You must also fully document the entire process."

When the recruitment process is over, HR managers should e-mail a copy of the questionnaire to the new staff member and other senior managers every year to ensure all the information is still relevant.

Financial firms should be actively enforcing a code of ethics anyway so all employees are aware of what standards they have to meet, Mr Dunne says.

If an allegation is made against a senior manager or director, or if they have behaved in a way that suggests they are not fit for the role, the company should notify the regulator and give a copy of that notification to the employee.

"Make sure it is clear to the regulator that this is only an allegation to protect yourself from any potential defamation action," Mr Dunne says.

"You need to show there is no malice in this. If malice is suspected, the employer and the individual themselves could be sued for defamation.

"If a director was, for instance, involved at a brawl at a Christmas party, I think it's something you should inform the regulator about.

"You have to ask yourself if you would want someone like that running your company."