On 24 Jul 2025, the HKMA endorsed the Phase 2 expansion of the Mandatory Reference Checking Scheme, effective 30 September 2025, extending coverage to securities, insurance, and MPF staff to address the 'rolling bad apples' risk. The refinements provide operational clarity for AIs, with the HKMA emphasizing monitoring of compliance as part of its ongoing efforts to promote sound bank culture.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 24 Jul 2025, the Hong Kong Monetary Authority (HKMA) issued a circular endorsing the Guidelines on Phase 2 of the Mandatory Reference Checking (MRC) Scheme, issued by the Hong Kong Association of Banks and the DTC Association, with implementation effective 30 September 2025.
Background and Purpose
The MRC Scheme addresses the 'rolling bad apples' phenomenon, where individuals with misconduct histories move between financial institutions without disclosure, posing operational, reputational, financial, and systemic risks. The HKMA endorsed the Scheme following industry consultations and a 2021 industry working group (IWG) led by the HKAB, with Phase 1 launching in May 2023 for senior positions.
Phase 2 Expansion and Refinements
Phase 2, effective 30 September 2025, substantially expands the Scheme's scope to cover staff licensed or registered for securities (Relevant Individuals), insurance (Technical Representatives), and Mandatory Provident Fund (subsidiary intermediaries) regulated activities. The refinements provide operational clarity through practical examples to assist Authorized Institutions (AIs) in fulfilling reporting obligations, including a requirement for AIs to develop communication/education plans for the expanded scope.
Implementation and Oversight
While the MRC Scheme is not a supervisory requirement, the HKMA attaches significant importance to its implementation. The HKMA will monitor AIs' observance during supervisory activities, noting that repeated failures may indicate weaknesses in governance or internal controls. This circular supersedes the HKMA circular of 5 May 2022 on the MRC Scheme.
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