Overview
Financial services is the only industry where a federal statute can make hiring someone unlawful outright. In most sectors the law tells an employer how to run a background check. In banking and securities it also tells them who they may not employ.
That produces 2 layers. A disqualification layer set by regulators, which is not a judgment call, and an ordinary screening layer that still has to follow the same rules as everyone else. Employers who treat the first as replacing the second get into trouble.
Throughout this page, “screening company” refers to the outside firm an employer hires to run the check. In the law it is called a consumer reporting agency, or CRA.
Which Checks Are Commonly Run
| Criminal Records | The disqualification layer. For banks the concern is dishonesty and breach of trust offenses; for securities firms it is felonies and financial misdemeanors within 10 years. |
| Credit Reports | Genuinely job related here in a way it rarely is elsewhere, though the state exemptions are narrower than most employers assume. |
| Employment History | Securities firms are expected to verify a full 10 years, which is far beyond ordinary practice. |
| Education Verification | Standard, and tied to the qualifications disclosed on registration filings. |
| Civil Records | Judgments, liens, and bankruptcies carry weight for roles handling client funds, and are disclosable on securities registration. |
| Global Watchlists | Sanctions screening, driven by anti money laundering obligations rather than by hiring policy. |
| License Verification | Securities registrations, insurance producer licenses, and accounting credentials, each with public disciplinary records. |
Section 19: Who a Bank May Not Employ
Section 19 of the Federal Deposit Insurance Act prohibits any person convicted of a criminal offense involving dishonesty, breach of trust, or money laundering, or who entered a pretrial diversion program in connection with such an offense, from participating in the affairs of an insured depository institution without the prior written consent of the FDIC.
It is a bar, not a factor to weigh. Penalties for violating it are severe.
The 2022 Changes Narrowed It Considerably
The Fair Hiring in Banking Act, enacted in December 2022 as part of that year’s defense authorization legislation, removed whole categories of offense from Section 19’s reach. The FDIC’s conforming regulations took effect on October 1, 2024.
Excluded from the scope of Section 19 as a result:
- Expunged, sealed, or dismissed offenses, where the order intends the conviction to be destroyed or sealed.
- De minimis offenses, meaning relatively minor matters including small dollar simple theft, bad check offenses, and use of false identification. This was a substantive change. Previously these were covered but treated as automatically approved. Now they are outside the statute, and no application is required.
- Older offenses, where sufficient time has passed since the offense occurred.
- Offenses committed at a young age, with a shorter waiting period than the general rule.
Screening policies written before October 2024 are very likely wrong. A candidate rejected under the old reading of Section 19 for a minor, old, or expunged offense may now be entirely outside the statute. This is the single most common compliance gap in bank hiring right now, and it produces rejections the law no longer requires.
What Section 19 Does and Does Not Reach
It does not cover arrests, or pending cases that were never brought to trial without a program entry, or acquittals, or convictions reversed on appeal. It does cover convictions currently under appeal, and convictions that have been pardoned.
Where an offense is still covered, the route is an application to the FDIC for written consent rather than an automatic bar for life.
FINRA and Securities Registration
Broker dealers operate under a separate regime, and it is more prescriptive about the screening process itself.
Two Distinct Duties
FINRA Rule 3110(e) requires a member firm to do 2 things for each registration applicant. Investigate the good character, business reputation, qualifications, and experience of the applicant. And verify the information reported on the applicant’s Form U4.
Written procedures must provide, at minimum, for a national search of reasonably available public records, and that search must be completed no later than 30 calendar days after the Form U4 is filed. Firms are expected to verify the full 10 year employment history disclosed on the form.
Fingerprints and Statutory Disqualification
Registration involves submitting fingerprints alongside the Form U4, producing an FBI criminal history report. The purpose is to establish whether the applicant is subject to statutory disqualification, which generally reaches felony convictions within the past 10 years, certain misdemeanors involving financial misconduct such as theft, fraud, embezzlement, or misappropriation, injunctions barring securities activity, and expulsions from a self regulatory organization.
Form U5 and the Public Record
When a registered person’s employment ends, the firm files a Form U5 recording the termination and the reasons for it. Much of what is reported through the registration system becomes publicly searchable through BrokerCheck, which means a registered person’s disclosure history is visible to anyone, including future employers and clients.
Failures here are enforced. FINRA has issued substantial fines to firms for deficiencies in their background investigation processes.
The Credit Exemption Is Narrower Than People Assume
Financial services employers routinely believe the state credit check restrictions do not apply to them. That belief is only correct in fewer than half of the restricting jurisdictions.
Of the 12 jurisdictions that restrict employer credit checks, 5 exempt financial institutions as a category: Colorado, Connecticut, Illinois, Maryland, and Oregon. The remaining 7, being California, the District of Columbia, Hawaii, Nevada, New York, Vermont, and Washington, do not exempt the institution. They provide role based exceptions instead.
The practical difference is real. In an exempting state, being a bank is the answer. In the others, the employer has to show the credit check is job related for that specific position, which most genuinely financial roles will satisfy through exceptions covering fiduciary duty, signatory authority, access to cash above a threshold, or similar. But the justification is per role, not per employer, and several of those states require it in writing.
A bank branch in Portland and the same bank’s branch in Seattle are therefore in different positions, and a policy written once for the whole institution will be wrong in one of them. Our credit reports page covers the individual state rules.
Ongoing Obligations
Unlike most industries, screening here does not end at hire.
- Section 19 applies continuously. The prohibition covers becoming or continuing as an affiliated party, so a conviction during employment matters as much as one before it.
- Registration filings must be kept current. A firm learning of facts requiring a Form U4 amendment generally has 30 calendar days to file it.
- Sanctions screening is periodic, driven by anti money laundering programs rather than hiring cycles.
- Licenses and registrations expire. Verified at hire tells you nothing about renewal status 2 years later.
Common Mistakes
- Running a pre-2024 Section 19 policy, and rejecting candidates over offenses the statute no longer reaches.
- Treating Section 19 as covering all crimes. It reaches dishonesty, breach of trust, and money laundering, not any conviction.
- Assuming a blanket credit exemption in states that exempt roles rather than institutions.
- Skipping the adverse action process because a regulator required the disqualification. Federal screening rules do not displace the FCRA.
- Ignoring state fair chance procedures, which still apply to everything Section 19 does not cover.
- Verifying less than 10 years of employment for registered persons.
- Treating a watchlist hit as a criminal finding, when a sanctions designation is an administrative action rather than a conviction.
For Job Seekers in Financial Services
- Section 19 is narrower than it was. If you were told years ago that a conviction permanently barred you from banking, that may no longer be true, particularly for minor, old, or expunged offenses.
- Consent is a real route. Where an offense is still covered, the FDIC has an application process. It is not an automatic lifetime bar.
- Disclose fully on registration forms. In securities, an omission is treated more seriously than the underlying matter, and can end a career on its own.
- Your disclosure history is public. Registered persons should know what BrokerCheck shows about them, because clients and employers can see it.
- Credit matters more here than elsewhere, and in most restricting states the employer still needs a job related reason. Ask what it is.
- If the report is wrong, dispute it. Our guide to disputing a background check covers the process.
Best Practices
- Review your Section 19 policy against the rules effective October 2024, not the older reading
- Separate the disqualification analysis from the discretionary one, and document each
- Check whether your state exempts financial institutions or only specific roles before running credit
- Where a written job related justification is required, prepare it before the request goes out
- Follow the adverse action process even where a regulator required the outcome
- Build the 30 day verification window into onboarding rather than treating it as a deadline to survive
- Re-screen rather than relying on a check from the hire date, since the obligations are continuing
- Apply state fair chance rules to everything the federal disqualifications do not reach