Background checks

Background checks are used to verify information about individuals in recruitment and, in particular, financial operations.

Glossary
Background checks

Explained – what does a background check mean?

A background check is a process in which employers, and often financial institutions, review an individual’s background to ensure reliability and regulatory compliance. In the financial sector, this may involve assessments of financial history, criminal record checks and identity. As these checks frequently involve sensitive personal data, they must be conducted in accordance with the GDPR. Many organisations engage a GDPR lawyer to ensure that background checks are carried out lawfully and proportionately.

When do background checks become relevant?

Background checks arise in various situations where trust and risk management are critical. When recruiting for sensitive roles, for example in banking and finance, employers often require verification of an individual’s background. Under anti-money laundering frameworks, financial institutions may need to verify customers’ and employees’ history to prevent crime. The question also arises in outsourcing or collaboration with third parties, where third party background screening or pre employment screening may be appropriate.

HR professionals reviewing a background check report on a tablet during a hiring meeting.

Key considerations for background checks

When an organisation conducts background checks, there are several legal and practical aspects to address to ensure compliance, including employment background checks carried out as part of recruitment processes.

Ensure there is a lawful basis for the processing under Article 6 of the GDPR.
Avoid collecting more data than necessary – the principle of data minimisation applies.
Take particular care with personal data under Articles 9 and 10 GDPR, such as health data or trade union membership, and with criminal record checks where applicable.
Inform the individual about the purpose of the check and their rights.
Ensure that outcomes are handled confidentially and shared only with authorised recipients.
Document the process in accordance with Article 30 GDPR.
Tailor the background screening process to the specific risk level of the business, including identity verification checks and employment history verification where relevant.

Considering these points reduces both legal risks and the risk of harming the individual’s privacy.

Background checks

Why are background checks important?

Background checks are important to mitigate the risk of economic crime, fraud and other irregularities. In the financial sector, they are a tool to meet requirements under the Anti-Money Laundering Act and other regulatory frameworks, often alongside employment background checks and criminal record checks.

At the same time, background checks are essential to adhere to the GDPR’s principles of lawfulness, transparency and proportionality. By conducting checks correctly, organisations can combine risk management with respect for the individual’s rights.

From a business perspective, well-executed checks build confidence among customers, regulators and investors. They demonstrate that the organisation protects privacy and maintains a high standard of compliance, supported where appropriate by professional background check services or a background screening service.

A background check is a review of an individual’s background, for example criminal records or financial history, to ensure reliability.

An employer may conduct a background check if there is a lawful basis under the GDPR. The check must be proportionate to the role, particularly for recruitment background checks.

Background checks involve personal data processing and must therefore comply with the GDPR. For organisations, this means, among other things, that:

There must be a lawful basis.
The individual must be informed about the processing.
Data must not be retained longer than necessary.

Financial services face heightened risks such as money laundering and fraud. Through background checks, banks and other actors can identify high-risk individuals, confirm staff suitability and meet requirements under anti-money laundering legislation.

The organisation that orders or conducts the check is the data controller under the GDPR. If external providers are engaged, there must be a data processing agreement.

A credit report is a standardised assessment of an individual’s financial situation by credit reference agencies. A background check is broader and may include different types of information depending on the purpose, such as criminal records, employment history or education verification.

Credit report: focus on ability to pay.
Background check: a broader assessment of an individual’s general reliability.
Both are governed by specific laws, including the GDPR and the Credit Information Act.

In practice, organisations may combine candidate background screening with identity verification checks to ensure comprehensive, proportionate due diligence.