Excerpted from a Reuters blog by Julie DiMauro

The Financial Industry Regulatory Authority’s $1.25 million fine levied against a J.P. Morgan Chase & Co unit for lapses in background checks shows the importance to compliance of ensuring proper employee screening.

FINRA fined J.P. Morgan Securities for incomplete background checks on 95 percent of its non-registered associate employees from January 2009 through May 2017. The failures violated regulatory imperatives and prevented the firm from determining whether these persons would have been otherwise disqualified from working at the firm.

The firm self-reported these lapses to FINRA, which was factored into the fine, the self-regulator said in announcing the settlement last month.

Failures in a firm’s screening protocol could showcase either deficient policies and procedures, communications failures in alerting compliance and human resources staff of the missing information, or a conscious disregard.

A company committed to investor protection and using due diligence in the required functions must make employee screening part of the compliance checklist for staff to follow. Furthermore, effective controls must be in place to signal screening gaps.

Firms also should strongly consider going beyond FINRA’s imperatives to further investigate the veracity of claims made in potential employees’ resumes and applications, such as education and employment history and performance.

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