Hong Kong’s expanded Mandatory Reference Checking Scheme: early insights from the first months of Phase 2

As Hong Kong moves beyond the initial implementation period of its expanded Mandatory Reference Checking (MRC) Scheme, the impact of bringing a significantly expanded population of financial services roles into scope is becoming clearer. The early implementation period provides a clearer picture of how the reforms are operating in practice and how firms are adapting to the new regulatory expectations.

Several early themes are emerging that go beyond what firms anticipated ahead of Phase 2, particularly around intra‑group mobility, data governance and regulator scrutiny. 

A recap: the significance of Phases 1 and 2

The MRC Scheme was first introduced in 2022 and implemented for senior banking roles (including directors, chief executives, managers and responsible officers) in 2023. It was designed to prevent the “rolling bad apples” phenomenon, where individuals with a history of misconduct move between financial institutions without proper disclosure of their previous conduct.

Industry feedback suggested solid support for the MRC Scheme and encouraged regulators to expand its scope, leading to the Phase 2 rollout in September 2025 to strengthen the industry‑wide efforts. The Hong Kong Monetary Authority (HKMA) has emphasised that undisclosed misconduct not only poses operational and financial risks to individual institutions, but also threatens public trust and confidence in the broader financial system which is built on the work of nearly 100,000 individuals providing a wide range of financial services. 

Compared with Phase 1, which focused on a relatively small cohort of senior banking roles, Phase 2 expanded coverage dramatically to include regulated professionals in: 

• Securities‑related roles licensed under the Securities and Futures Ordinance;
• Insurance‑related roles, including technical representatives licensed by the Insurance Authority; and
• Mandatory Provident Fund intermediaries, including subsidiary intermediaries registered with the MPFA. 

Reportable information includes breaches of legal or regulatory requirements, findings of misconduct, disciplinary actions, and ongoing investigations, although only information meeting the Scheme’s defined thresholds should be disclosed. 

The impact of Phase 2 has been the leap from roughly 3,500 in‑scope individuals to more than 50,000, placing significant operational demands on firms’ HR, compliance and data management functions.

Early observations: how the market has adjusted

1. Uptake and process maturity are improving

In the initial months since the introduction of Phase 2, firms found the MRC Scheme’s prescriptive framework (including the mandatory information template and the one‑month response requirement) helpful in standardising processes. Many institutions have integrated MRC workflows into recruitment checks for newly in‑scope roles, in line with recommendations published by the Hong Kong Association of Banks (HKAB).

2. The seven‑year look‑back remains a key pressure point

Authorised Institutions (AIs) continue to request conduct‑related information covering the preceding seven years, as required under the MRC Scheme. Practical challenges have arisen in implementation where candidates have held multiple roles across different regulated sectors — particularly given Phase 2’s cross‑sectoral reach — requiring firms to coordinate multiple reference requests and reconcile differing record‑keeping practices.

3. Increased intra‑group queries

The HKAB has confirmed that MRC checks apply even for transfers between different legal entities within the same group, which has resulted in a higher‑than‑expected volume of internal reference requests in multi‑entity structures.  This has prompted some firms to reconsider internal mobility and secondment processes.

4. Cross‑border complexity remains an issue

As anticipated in industry commentary, delays can arise when candidates have overseas employment histories or have worked for firms outside Hong Kong’s regulatory perimeter. These scenarios require additional verification steps, and some firms report longer recruitment timelines as a result. 

5. Regulator scrutiny is increasing

Although the MRC Scheme operates through guidance rather than prescriptive rule‑making, early indications show the HKMA is actively reviewing firms’ implementation as part of broader culture and governance assessments. Repeated failures to comply may be treated as evidence of underlying control weaknesses. 

What’s next: what the first months suggest for firms going forward

1. Investment in internal processes pays off

Early adopters that updated recruitment policies, trained HR teams and embedded MRC processes into standard onboarding have navigated Phase 2 more smoothly — an approach aligned with HKMA guidance ahead of implementation. 

2. Data governance is a rising priority

Handling sensitive conduct‑related information (especially across different entities and business lines) has prompted firms to revisit data privacy protocols, retention policies and record‑keeping standards.

3. Hiring teams need to plan for longer timelines

Given cross‑border complexities and increased intra‑group checks, firms are recalibrating expected hiring lead times for regulated roles, with some building MRC checks into offer‑stage planning rather than post‑acceptance.

4. Ongoing refinements are likely

As with Phase 1, regulators may introduce further operational refinements once the industry has more experience under Phase 2, particularly where implementation challenges are common across firms.

A divergence in approach: comparisons with the evolving UK landscape

By way of contrast, as Hong Kong refines its framework through a structured approach incorporating mandatory templates, prescribed timelines and a defined seven‑year disclosure window, the UK is taking its similar Senior Managers & Certification Regime (SM&CR) in a different direction. 

UK regulators are consulting on reforms aimed at streamlining the SM&CR – including simplifying certification, easing administrative burdens and introducing greater flexibility into senior manager approvals.  These proposals are driven by concerns over administrative cost and friction, and by a broader policy objective to enhance the UK’s international competitiveness and growth. You can read more about the UK’s SM&CR regime here.

The MCR Scheme and the UK’s SM&CR were introduced within a few years of each other in the late 2010s, as part of a global effort to reform bank culture. Whilst the outcome of the UK consultations is not expected until mid-2026, the trajectory points towards a meaningful divergence between two of the world’s major financial centres.

A factor that might make any divergence less visible in practice is the increasing focus on internal conduct standards in the UK, reflected in a marked rise in conduct investigations. Internal and external investigation practices are generally less embedded in Hong Kong, although this is expected to evolve significantly over the coming years, particularly as firms strengthen their governance and accountability frameworks.

The MRC Scheme and the SFC’s broader supervisory framework

For AIs that are also registered with the Securities and Futures Commission (SFC) for their securities related regulated activities — the MRC Scheme is complementary to the SFC's existing conduct framework. Both regimes are anchored in the same foundational standard: fitness and properness. 

The HKMA's MRC-reportable categories — breaches of legal or regulatory requirements, findings of misconduct, disciplinary actions, and ongoing investigations — map directly onto the criteria against which the SFC assesses whether a licensed individual satisfies the fit and properness. 

A relevant event will therefore call for a careful review of the individual as well as the AI’s regulatory obligations under the MRC Scheme, and the SFC’s broader conduct framework[1], noting that the MRC Scheme focuses on the point of hire, and the SFC’s framework imposes continuing obligations on licensed individuals.

Conclusion: a maturing regime with further evolution likely

The first few months of Phase 2 demonstrate that, while the expansion has increased operational effort, it has also strengthened the industry’s ability to identify and mitigate misconduct risks across sectors. Firms are becoming more adept at integrating MRC checks into recruitment processes, and the MRC Scheme is beginning to deliver on its objective of improving conduct transparency.

By contrast, the UK is moving towards simplification of its own accountability regime, illustrating two distinct regulatory philosophies emerging internationally. As Hong Kong’s Scheme matures, further guidance or refinements may follow, but the direction of travel is clear: conduct‑related transparency remains a central pillar of the city’s financial governance framework.

For firms, early priorities include stress‑testing intra‑group transfer processes, ensuring data governance frameworks can support seven‑year look-back periods, and factoring MRC timelines into recruitment planning for regulated roles.

For more information on this topic in the meantime, please speak to the authors of this blog post or your usual Freshfields contact.