In most countries, competition law is geared toward combatting trusts, meaning ensuring competition by fighting monopolies, not fake news, although they could be used to manipulate prices or the reputation of the competition. This suggests, that there could be gaps in the legal protection of companies and market participants. 

Given the recurring interest among academics, experts, and journalists in the issues of misinformation, disinformation, and fake news within the finance industry, we endeavoured to uncover the root causes. We sought to understand the barriers that hinder companies and financial institutions from effectively combating misinformation, disinformation, and fake news. To achieve this objective, we conducted an interview with Oliver Pahnecke. His research focuses on sovereign debt and human rights, because of which his research interests overlap with the rule of law, corruption, money laundering and the dissemination of information that has an impact on debt and investments, for example, market manipulation via fake news. 

"In my view, the primary issue in many cases is a sense of impunity. If there were immediate legal repercussions for generating and spreading disinformation and fake news, I believe this problem would not be as severe."

Targets of fake news campaigns are not left without legal means to defend themselves and their reputation, or to claim compensation for financial loss. The company itself could request an injunction against the initiator of the fake news campaign, demand a rectification or counterstatement, claim damages, also reputational ones, or appeal for an infringement of property rights in certain instances – if the initiator is known. 

The British newspaper Western Morning News looked into the case of "Papaya", a Maltese fintech company which has been mentioned by news outlets in the context of an ongoing EU-wide anti-money-laundering investigation. Neither the German prosecution nor Eurojust, have mentioned Papaya and her owners as suspects in that probe. Yet, the “Times of Malta” and the “Trinity Bugle” published discrediting articles concerning Papaya.

“In this case, we can observe two different media outlets. When it comes to the online - publication “Trinity Bugle”, a typical masthead or publisher’s imprint is missing but their homepage offers addresses in Ireland and Cyprus and a name. Nevertheless, there appears to be no entry in the online company registers in Cyprus as well as in Ireland. Therefore, that gives rise to the assumption that there could be something wrong.

The “Times of Malta”, on the other hand, is a major news website in Malta with all the classical features of an established media outlet, which also reported on the EU-wide probe on 25 February 2024. Since the press releases of the German prosecution and Eurojust do not mention the name of the financial institution, it remains to be seen which of the many financial institutions active in Malta is involved in money laundering, and in what way.

Nevertheless the “Times of Malta” suggests that Papaya is “suspected of offering ‘money-laundering services’”. Even though the “Times of Malta” gave Papaya the chance to give statements, the “Times of Malta” kept insisting Papaya was somehow connected to money laundering, something that has the potential to tarnish a business reputation. Should these allegations be proven groundless the “Times of Malta” risks a yellow press reputation and maybe even legal liability, should these allegations have caused damage.”

The reporting surrounding this European anti-money-laundering investigation stresses the importance of clear editorial responsibility. Provided the allegations lead to damage to the company but turn out to be unfounded, it is easier to hold a media house accountable, which is duly registered. Obviously, in cases of dissemination of disinformation or fake news, it is conceivable to start court proceedings against any media outlet that conducts a campaign against a financial institute, for example. But it is more difficult in cases where the imprint is missing.

“Certainly, it's not all doom and gloom. There are numerous successful examples to consider. The SEC also initiates fraud charges against individuals and companies that are potentially engaged in the dissemination of articles that could mislead investors. In April 2017, for example, 27 individuals and firms were charged by the SEC with the fraudulent promotion of stocks:

The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges. But as was mentioned before, not every country has powerful and efficient regulators such as the U.S. Security and Exchange Commission.”

In any case, the legal options available to a victim of a fake news campaign are based on government bodies, courts and procedures that take a lot of time. The victim may have already suffered significant damage by the time the official procedures started. While a fair and thorough procedure is important to protect the rights of the defendant – and also free speech – a long procedure might harm an innocent target of fake news, as well as market participants. Hence, victims of fake news face regulatory gaps in their defence, while the velocity of the dissemination of fake news, their outreach and low cost make it difficult to respond adequately to the threat.

While it is understandable that regulators and journalists focus on the new financial service providers also out of curiosity and the technological side of finance captivates the minds of some social media users, the amount of problems related to conventional banks does not give rise to the assumption that neobanks and fintech companies were less reliable. Naturally, cases involving challenges faced by the new generation of financial service providers are not limited to Maltese companies, either. Without assigning legal liability or culpability to anybody, several neobanks and fintech companies in the EU faced challenges in the past fifteen years or so, during which the modern financial services industry emerged. 

"One example is the current row between Revolut and the UK’s Financial Ombudsman Service, as reported by the Telegraph. Revolut is a financial service provider who faced disputes with regulators. Another example is the problems of N26 as the German regulator BaFin communicated in her press releases.

Since its establishment in 2015, Revolut has frequently come under criticism, often without any factual or legal substantiation. For instance, in 2019, The Daily Telegraph reported that "thousands of illegal transactions may have passed through the London-based start-up’s digital banking system between July and September of 2018.” Revolut's founder and CEO, Nik Storonsky, had to publicly address the newspaper's allegations, clarifying that there was "some misleading information in the media regarding [the company's] compliance function." Furthermore, Nik Storonsky asserted that Revolut conducted a thorough investigation into all transactions processed during the period under question and detected no irregularities.

Over the same period, conventional banks were involved in so many incidents that already a cursory comparison puts the challenges of neobanks and fintech companies into perspective."

HSBC, Europe’s largest bank, was repeatedly investigated and fined for weak anti-money-laundering processes, alleged money laundering and tax evasion in numerous jurisdictions worldwide. In the case of Credit Suisse, which was also involved in several large-scale financial scandals, it remains to be seen in how far social media contributed to her demise. A CNBC article from October 2022, for example, contains statements such as “rumoured”, “market concerns”, “negative sentiment surrounding the stock” and “Real risk around Credit Suisse is rumours becoming self-fulfilling” apparently points to strong social media pressure. In March 2023 her competitor, UBS, agreed to take over Credit Suisse to avoid the bank’s collapse. And today, in April 2024, Reuters reported that Morgan Stanley shares lost 4.8% following the disclosure that Morgan Stanley’s wealth management is being probed by U.S. regulators.

These cases underline that money laundering allegations and other regulatory problems are neither restricted to neobanks and fintech companies nor that fake news is a problem only faced by the new financial service providers. Such a comparison also demonstrates the immense impact financial news can have on the stock exchange: if reports on an investigation let the shares of a major bank drop by 4.8%, fake news about much smaller neobanks and fintechs could move their market value even more drastically.

What has to be taken into account, however, is the fact that conventional banks participated for decades in the creation of the financial system as it is today. It is their system. Neobanks, on the other hand, did not have the time to coin the system, to address their needs with policymakers and regulators. The new financial service providers do not yet have the same means at their disposal as conventional banks. Consequentially, they might want to consider addressing their problems and challenges together. That way they would also be better prepared to combat fake news and other asymmetric threats that law enforcement is not yet equipped to tackle.