Have you ever thought of what would happen if your bank doesn’t adequately screen for risks from negative publicity?
The Compliance head described this as follows: “If we don’t perform negative media screening, we’ll be operating in the dark of what possible issues might arise with new or existing customers. That’s an unnecessary risk that all banks must wish to avoid.”
Negative media screening ensures that banks screen for any bad news about individuals and businesses before allowing them to become customers.
Early checks ensure that banks do not get worse people who are doing dangerous, illegal, or unethical things.
If banks fail to do proper negative media screening, the risks will slip through the cracks and lead to serious financial and legal problems.
This article will discuss some of the major risks that banks expose themselves to when they are not conducting negative media screening regularly.
Reputational damage from problematic clients
The banks need the trust of the customers. If a bank welcomes into its pool all the customers involved in illegal activities, such as fraud, without negative news screening, the popularity of the bank might be at stake.
A report released in 2023 indicated that 65% of consumers would disassociate themselves from a bank allied to unethical practices.
Some other clients may not wish to do business with such a bank, which is perceived to be doing business with problematic clients.
Negative news screening solutions help catch such types of clients early so the name of the bank remains clean.
Non-compliance with anti-money laundering regulations
To prevent money laundering, governments want to stop criminals from hiding money from illegal acts.
Governments make banks follow anti-money laundering or AML rules. With the help of negative news screening software in client checks, banks may miss signs of customers’ implication in money laundering.
This reflects that the bank needs to follow the important negative news screening AML laws. They might even suffer significant fines for failing to comply.
According to reports from the Financial Action Task Force, around 2 trillion dollars are laundered worldwide every year. More than ever, compliance in the banking sector is of paramount importance.
Bonus: Find out how banks cannot afford to expose themselves to potential risks by overlooking critical profiling processes like adverse media screening.
Higher chances of regulatory fines and sanctions
The regulators of banks take the finance industry very seriously to keep it safe and honest.
The regulators could fine or punish the banks for other regulatory reasons if they see that a bank is not carrying out its usual activities, such as screening off negative news to filter bad clients.
Regulatory fines to banks exceeded $5 billion in 2023, which presents some financial stakes. The greater the offense, the more severe the sanction potentially is.
Negative news screening applications and regular customer negative news checks keep banks from being on the wrong end of regulatory actions and out of the reach of such punishments.
Increased risks of accepting criminal or terrorist funds
Banks need to be very cautious about who funds their sources. Criminals and terrorists will attempt to use the banking system to launder money derived from unlawful acts.
According to a 2023 report by FATF, about $800 billion to $2 trillion is laundered annually through global financial systems.
Such money funding for illicit plans can threaten the bank’s reputation and cause legal problems on a very massive scale.
Loss of trust and confidence from customers
Customers want to be sure that their bank is properly looking out for them and not putting them in harm’s way.
If a bank glosses over issues such as using negative news screening software and then reveals that the customer was committing some sort of illegal activity, all that trust customers have in that bank is eradicated.
A recent survey indicates that 76% of consumers report they would leave a bank if they feel it needs to do more to protect their information.
Consumers may then take their business elsewhere to a bank where they perceive it safer.
Damage to brand value and customer relationships
Banks must establish a powerful brand and the trust of loyal customers, but events such as having previously affiliated clients as fraudsters damage the perceptions of that bank brand.
Accenture’s latest survey shows that 70% of customers are ready to lose a bank due to bad news about any financial institution, giving proper attention to the value of building a trustworthy brand image.
In reality, when existing customers lose confidence in the brand, they also lose faith in the bank and may leave it.
The screening solutions for negative news help the banks ensure that only legitimate clients have won their services and will not drag the good brand name into the mud.
Negative media attention and loss of social license
No one wants to see their bank plastered in headlines for helping hide dirty money. When missing something during client checks does not trigger negative news screening solutions, the risk increases of newspapers or blogs publishing later discoveries.
The court of public opinion also defines a bank’s “social license to operate,” and negative publicity chips away at that acceptance in the communities a bank serves.
A recent study has shown that 77% of consumers will trust banks with a well-known history of compliance and transparency. Both can force banks to lose their ability to conduct business over the long haul.
