Compliance fail? – why assessing the credibility, timeline and content of adverse media searches leads to confirmation bias, a true story of cognitive bias.

How It Started.

When fraudsters cloned a legitimate Financial Conduct Authority regulated business they were identified and a warning published on the FCA daily alert list at https://www.fca.org.uk/consumers/warning-list-unauthorised-firms.

The Set Up

An online blog/newsletter identifying itself as a “financial intelligence service with the mission to protect investors by providing up-to-date information about scams and investment opportunities in the cyberfinance space, providing investigative journalism covering scams, financial crime, illegal online schemes, and perpetrators on the ground of a strong whistleblower community”. The reality is that they slander companies and publish misleading articles about the business or individuals involved, and then, ask for money to remove the articles.

The Sting

Fraudsters spoofed a legitimate business that a regulated financial institution had given "agent" status to - there is no mention in the FCA warning that either the regulated entity or its agent had done anything wrong.

Then for reasons only known to the media company posting the story, they created a headline with "FCA warning" and "the name of the regulated entity" in the same sentence. The article concentrated on the regulated entity and included a list of the related individuals connected to the business and known to the FCA.

The regulated entity contacted the media company asking them to remove the inference that they had received the FCA warning and were implicated in the deception. The media company suggested that they pay money to remove the false and misleading information by subscribing to their “whitelist service”

Adverse Media Implication.

A known and respected CEO (one of the individuals mentioned in the article) started a new business with two other veterans of the payments industry and was attempting to open business and client accounts with a European bank. The bank refused the application based on the article mentioned above and also stated that the business was “outside of their risk appetite”

By stretching the definition of risk, the bank has shown no patience for detail or complex thinking, preferring simple sound bites that provide easily misunderstood spin. The decision made by the compliance people at the bank is a sad indictment of the quality of their training and reminds me of a George Bernard Shaw quote from 1903, “beware of false knowledge; it is more dangerous than ignorance”