Licensed to trust

I’ve been talking about trust a lot lately, as that’s the basis of why you put money in a bank. You trust them. Why do you trust them? Well, it’s not because of their brand or their branch. It’s because they are licensed and promise to guarantee that they will not lose your money or, if they do, they will pay you back.

“You wouldn’t give money to someone you didn’t trust, would you? Making a deposit into a bank or building society account is like giving your trust to that organisation. You trust that it will look after your money and, when you want to access that money again, it will be there.” PRA website

This is core to the financial industry: trust.

What happens if you lose that trust however? Equally, trust is a two-way street so, what happens if the financial provider stops trusting you?

I have encountered this dilemma a number of times lately. Situations where the financial provider enquires too deeply about my financial life or where I stopped trusting my bank to deliver the service expected.

Interestingly, a friend of mine has just been going through this. His company recently moved from a big bank to Revolut to run their account. All good? Well, yes and no.

Within weeks, their account was hacked and $100,000 taken.

What went wrong?

Well, it was CEO fraud or spear phishing, whatever you want to call it.

The basics are that someone, somehow, got in the middle of the account set-up with Revolut and discovered specific details about the company, and their security details.

Next, someone rang the CFO and said there had been an attack on the account and needed to verify information. This led to a detailed conversation where the CFO confirmed lots of information that should have been confidential. Unfortunately, it was no longer confidential. It was in the hands of a fraudster.

A few minutes letter $100,000 left their account. Job done.

The issue of trust is then in vogue as my friend was asking how to get the money back, and my answer is the they won’t. First, the information was given voluntarily to a third party who had criminal intent; the second is that, even if the fraud could be proven, Revolut is only just becoming a licensed bank and has yet to activate their license. Therefore, as a pure EMI – Electronic Money Institution – there is no cover.

Feeling really sorry my mate, but the thing about trust is where it sits. If it sits with an institution that can promise it’s safe, that’s fine (this is where banks come from). Otherwise, who can you trust. In the latter case, it’s were I have huge issues with cryptocurrencies as no one and nothing backs it, and no one and nothing will promise to reimburse you if you lose it.

There are ways around that, such as using Coinbase which is a licensed exchange … which revolves our circle of trust. You can only trust companies that have a license to be trusted … but trusted for what and for how much?