SECURITIES INDUSTRY ASSOCIATION

Statement for the Record

of the Hearing on S. 1815

Before the Committee on Labor and Human Resources

April 23, 1986

The Securities Industry Association ("SIA")* appreciates this opportunity to offer our views and recommendations concerning the use of polygraph testing and the legislation under consideration by the Committee.

As you may know, the securities industry uses selective polygraph testing for a small percentage of its employees. These tests are generally limited to 1) pre-employment interviews for those who will have direct access to negotiable instruments, securities or confidential information; and 2) internal investigations of a theft or disappearance of

negotiable instruments, currency, or securities, a misappropriation of confidential information lists or other

The SIA is the trade association representing over 500
securities firms headquartered throughout the United States
and Canada. Its members include securities organizations
of virtually all types investment banks, brokers,
dealers, and mutual fund companies as well as specialists
and other firms functioning on the floors of exchanges.
SIA members are active in all exchange markets, in the
over-the-counter market and in all phases of corporate and
public finance. Collectively, they provide investors with
a full spectrum of securities and investment services and
account for approximately 90% of the securities business
done in North America.

wrongful acts (i.e., the use of inside information, rule

violations, or the sending of a false or unauthorized

communication).

arbitrarily.

These tests are not conducted randomly or

As an industry, we are committed to preserving the privacy and civil rights of our employees and prospective employees. To that end, we are selective in our use of polygraph tests and follow strict guidelines when such testing is appropriate.

First, our member firms employ only experienced, reputable polygraph examiners.

Second, in both pre-employment interviews and internal investigations, the polygraph is never the sole determinant for making a decision, but is only a tool used in those processes. Other factors in the hiring process include a face-to-face interview, a written application, reference checks and an FBI report. Similarly, some of the measures taken to investigate wrongdoing include interviews, document research and accounting trials. The polygraph is used only if it is warranted by the

circumstances.

In

Third, the tests are administered selectively. pre-employment, only those who will have direct access to negotiable instruments, checks, securities and confidential information are tested.

Most firms further limit polygraphs by

never using the test as the first step in the hiring process. When used for investigatory purposes, the polygraph is used selectively and not on a dragnet basis.

Fourth, the questions asked during a polygraph exam are limited to the particular situation. In a pre-employment interview, the questions bear on the applicant's suitability for a sensitive job such as whether he or she has falsified employment application information, engaged in significant drug usage or thefts from previous employers. Similarly, in an internal investigation, the questions are limited to the facts of the incident being investigated. In neither case is the polygraph a "fishing expedition." Moreover, the industry does not ask questions concerning personal matters such as religious beliefs, political or union opinions, racial views and sexual preferences and activities, and would not object to statutory safeguards along these lines.

Fifth, the tests are administered carefully and

professionally.

Before each examination, the polygrapher

reviews the questions with the subject as well as any problems the subject might have in answering them. During the

examination, the subject is asked the exact questions that were reviewed previously.

If, during the test, there is an unusual

reaction in answering a question, the test may be stopped and the examiner will attempt to clear up the matter. After the exam, an attempt is made to resolve problematic answers,

including retesting if warranted. These tests are of

sufficient length to ensure that decisions are not based solely on physiological responses.

The SIA requests that the legislation under consideration

by the Senate (Polygraph Protection Act of 1985

S. 1815) be

amended to allow registered broker-dealers and other financial entities to continue the limited polygraph testing currently engaged in by the industry.

Our request for an exemption has a strong public policy underpinning: the securities industry is regulated extensively by both government agencies and self-regulatory organizations which have a mandate to protect the investing public and the nation's securities market. As the object of this regulation, securities firms are held to an unusually high standard of accountability. In order to meet that standard, it is important that these firms be permitted to use all available technical means, provided they are used responsibly and fairly. Logic also dictates that this legislation be drafted to consider the needs of securities firms. A small percentage of these firms' employees have direct, physical access to billions of dollars of cash, checks and securities as well as important confidential information belonging to the investing public. These firms, as fiduciaries, can be held liable for their customers' losses resulting from the misappropriation or misuse of these assets. In this light, it would be appropriate to permit polygraph testing as both a prophylactic measure in the hiring process and as an investigatory tool.

We would prefer not to see the exemption limited to particular types of pre-employment or investigatory