How Adverse Media & Other Text-Based Data Helps Financial Services Organizations Stay on Top of Reputational Risk
14 March 2023 13:00
What is your reputation worth? While reputation can be difficult to quantify, a study by the World Economic Forum suggests that more than 25% of market value can be attributed to an organization’s reputation. Particularly in the financial service industry, reputation and trust go hand in hand. In the years following the global economic crisis of 2008, trust in the financial services crashed too, and it wasn’t until 2016 that the industry saw a trust rating above 50%.
While trust has continued to rebound in recent years, the current economic and geopolitical volatility means financial services organizations are walking a tightrope—and a reputational misstep could lead to a serious fall in trust. Financier Worldwide notes, “With rising inflation and interest rates, geopolitical tensions, energy supply problems and continued unpredictability stemming from the coronavirus (COVID-19) pandemic, among other factors, [financial services] firms may see increased exposure to potential reputational risk.” This uncertainty presents a clear reason for financial services organizations to leverage adverse media feeds and other third-party data to improve reputational risk awareness.
The two sides of reputation: opportunity and risk
More than ever, financial services organizations need to stay on top of reputational risk to support informed decisions about their business relationships and operations. This can help them maintain a strong and positive reputation, which is essential for building trust and attracting and retaining customers.
A good reputation can be a competitive advantage, as it can help a financial services organization stand out in a crowded marketplace and build trust with its customers. Customers are more likely to do business with companies that have a strong reputation for reliability, transparency, and ethical behavior.
On the other hand, a damaged reputation can have serious consequences for a financial services company. Negative publicity, scandals, or regulatory violations can erode trust, damage relationships with customers and business partners, and lead to loss of business and revenue.
Furthermore, a damaged reputation can have long-term consequences, even after the immediate crisis has passed. Customers and investors may be reluctant to do business with a company that has a history of reputational issues, and it can take a long time and a significant investment of resources to rebuild trust and repair the company's reputation. After all, it took nearly a decade for the financial services industry to regain trust and repair reputational damage after 2008.
Benefits of using third-party data to improve reputational risk awareness
Financial services organizations generally have a leg up in terms of making good use of big data because it’s been a priority for so long. From analyzing internal transaction data to mitigate regulatory risk to analyzing customer data to create more personalized experiences, financial services organizations have been leaders in leveraging data to inform decisions for years.
When it comes to analysis related to reputation, several types of data can be particularly valuable.
Adverse media refers to news stories, social commentary, regulatory enforcement actions, legal proceedings, and other publicly available information that may be negative or damaging to a financial services organization’s reputation.
What sets an adverse media feed apart from general news is that the data is enriched with index tags, keywords and other metadata like sentiment scores. This enables much faster filtering so that you can quickly narrow massive amounts of global news data and social commentary down to the most relevant data based on your particular reputational risk considerations.
For example, if a financial services organization is considering entering a business relationship with a new customer, they can integrate adverse media data in risk assessments and due diligence checks to identify any negative news stories or other information that may indicate the customer has a history of unethical or illegal behavior. This information can be used to make an informed decision about whether to proceed with the business relationship, or to take steps to mitigate any potential risks.
ESG news and ratings
The growth of environmental, social, and governance (ESG) factors as reputation drivers has accelerated in the past decade. The Financial Brand notes that Millennials and Gen-Z, in particular, are more likely to cite a brand’s corporate responsibility as a factor when choosing which organizations they do business with.
ESG news and ratings data can provide valuable fuel for identifying reputational risks. For example, natural language processing and analysis of ESG news can help surface potential red flags among entities in your investment portfolios, so you can respond proactively to negative press that could damage your reputation. On the other hand, you can leverage positive ESG news or consistent ratings improvements over time to inform buy-sell decisions or pinpoint potential investment targets for building out ESG-focused investment products for customers.
Financial services organizations already navigate a complex regulatory landscape. However, with corporate governance a key consideration among consumers, investors and even employees, staying on the right side of regulations is more important than ever.
Integrating sanctions, politically exposed persons (PEPs), and watchlists into your risk management process not only helps you meet regulatory expectations to mitigate financial crime, bribery and corruption, but it demonstrates your commitment to good governance that can protect and even enhance your reputation.
The future of reputation risk management for financial service organizations
Reputational risk management is not just for times of crisis. By making reputational risk awareness part of your strategic agenda, you set your organization up for success. You build trust with your customers and the wider public—a critical advantage anytime, but especially in times of crisis. In a white paper on understanding reputation risk, Corporate Compliance Insights notes, “Those at the forefront of this issue in their companies, realize that reputation risk is not only about downside protection but presents untapped opportunities for value creation.”
Integrating the right data into your risk management workflow can help you stay alert to emerging reputational risks and find those opportunities to turn a positive reputation into a growth engine. What data do you need to protect and strengthen your reputation?
Talk with a Nexis® Data as a Service specialist to learn what sets our adverse media API apart from others.
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