Naomi Gaston: Challenger bank faces down fake news



Naomi Gaston
Naomi Gaston

Naomi Gaston, senior associate and head of banking and finance at Mills Selig, considers how businesses can protect themselves from the impact of “fake news” and rumours.

Customers queued earlier this month to withdraw cash and personal items from safety deposit boxes from Metro Bank. The queues at Metro Bank formed after rumours circulated on the messaging app, WhatsApp, that Metro Bank was in financial difficulties. The unsubstantiated messages advised the bank’s customers to withdraw any savings and empty safety deposit boxes.

The threat of fake news, rumours, viral social media campaigns and postings through messaging apps on financial stability and customer confidence cannot be overestimated. Fake news shared through WhatsApp has been linked to mob violence, lynchings and even killings. WhatsApp, which is owned by Facebook, now limits the forwarding of a single message up to five times to help reduce the spread of fake news. Markets, financial institutions and the economy are particularly vulnerable to the spread and influence of fake news.

Bank customers respond to perceived risk and are motivated to protect their ‘treasure’, whether in the form of savings or valuables stored in a safety deposit box. Metro Bank has confirmed that the contents of safety deposit boxes are always the customer’s property but some customers could not be reassured on this point. Metro Bank’s growth strategy is unusual for a challenger bank (a bank set up to compete for business with large, long-established national banks) as it has deliberately focussed on growing its network branch system and is one of a few of banks that offer safety deposit boxes. Its safety deposit box offering has proved popular and it is telling that trust in this service was deliberately attacked.

Recent events show that, in the face of insolvency risk, some customers will withdraw deposits and assets based on uncorroborated rumours. This very human urge to protect financial interests by exercising rights of possession may prompt panic as part of a wider market response and could potentially lead to a run on financial institutions, as last seen back in 2007. Commentators (particularly those on social media) have compared the queues at Metro Bank with the crowds outside Northern Rock, prior to its collapse. It’s conceivable that the next run on a bank will be attributed to fake news, social media or a combination of these two factors.

Metro Bank has been the victim of both fake news and ‘old news’, where ‘old news’ has been bad for investor confidence. Metro Bank is dealing with the fallout from miscalculations of the amount of capital it needs to support some of its commercial lending by around £1 billion. These miscalculations have resulting in investigations by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA). The announcement that Metro Bank was planning to raise £350 million from investors was also seen as financial weakness.

The timing of these rumours is significant, as they were circulated just weeks before Metro Bank’s annual general meeting and amid reports of significant short selling and hedge funds betting against the stock. Unsurprisingly, the value of the shares in Metro Bank has plummeted in response to issues with regulators, misreporting and attacks labelled as ‘fake news’.

Interestingly, Metro Bank used social media to fight back against recent rumours stating that “Metro Bank remains a safe and secure haven for our customers’ money”. Tweets from Metro Bank also reassured customers by highlighting the safety net of the Financial Services Compensation Scheme which gives protection for certain deposits up to £85,000 and temporary deposits of up to £1 million (in specific circumstances). In addition, Metro Bank reiterated positive news stories from recent months, including the fact that Metro Bank was rated number one for customer service for personal current accounts by the Competition and Markets Authority; its profitability; and its 1.7 million customer accounts.

It remains to be seen if Metro Bank’s response to recent challenges restores investor and customer confidence. If so, it might be a lesson for us all in reputation management and damage control. Like Metro Bank, be prepared to correct misinformation and ready to defend your reputation (and solvency if needs be) on social media.

Mills Selig

  • Naomi Gaston is a senior associate and head of banking and finance at Mills Selig.

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