MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for the ‘compliance’ Category

Social Media in Finance – Is It Time for Your Compliance Health Check?

Friday, April 4th, 2014

By Francis Groves, Senior Analyst

How far have compliance requirements for social media in finance come and exactly which are the most likely problems and the prime concerns of the regulators?

2013 saw significant strides being made towards making social media compliant in the banking and finance industry. This trend was particularly marked in the United States with the SEC signalling last spring that social media was an acceptable medium for disseminating the kind of information that could move stock prices just so long as the company’s investors were made aware that Facebook, Twitter & co. were going to be used as channels for this purpose by that company. In June the US’s Financial Industry Regulatory Authority (FINRA) announced that it would be carrying out spot checks on institutions regarding compliance in the social media arena. In a separate development, in September FINRA fined a broker for Facebook remarks about a company in which he and a few dozen of his clients held investments but which he failed to disclose in the Facebook entry. Finally, in December the Federal Financial Institutions Examination Council (FFIEC), which performs a policing role in relation to corporate practices of US banks and other financial institutions, produced its own final guidance on social media practice.

Just this week, the SEC issued guidance on the use of social media by financial advisors that makes clear that they are prohibited from using social media channels to advertise or promote themselves by means of client testimonials. Although customer testimonials may seem a fairly harmless form of self-promotion, under US law, as far as financial firms are concerned, testimonials are considered too selective and unrepresentative.

So, as far as the US is concerned the regulatory framework is fairly clear and, not surprisingly, expertise and resources to help the finance industry with social media compliance have become widely available. Social media compliance practitioners in the US include i-Social Smart, Actiance, Nexgate, GremLN, Gladiator Social Media Compliance Services, Smarsh and SocialComply from Temenos, the Swiss banking systems provider. Meanwhile, in Europe the regulatory picture is less clear with legislators and regulators still looking into the issues and considering their issues. Fewer social media compliance services seem to be available although some, such as Actiance and SocialComply, which are active in North America, also operate in Europe.

So what are the key demands that regulators have or may have in relation to social media channels in finance and what effect is this likely to have?

The following seem to be the main areas of concern in relation to social media in banking and finance:
- The risk of fraud / the danger to financial brands
- The danger of failing to take responsibility for social media content because the channel is deemed to be an   external third party
- Failure to train staff properly on handling social media as company representatives
- The danger of social media using customers privacy being breached (by themselves or staff)
- The problem of institutions responding to social media communications too slowly
- The danger of security breaches

Clearly these dangers are not negligible but neither should they create enormous problems for banking and finance staff who themselves are rapidly becoming more familiar with social media in ordinary life.

At MyPrivateBanking, we have consistently identified low cost advantages as being one of the attractions of social media. Effective use of social media gives financial institutions opportunities to both identify their own customers’ needs and preferences and to keep track of competitor activity in key areas. More generally and longer term, we see the banking and finance industry’s engagement with social media as empowering for customers and as an important factor in the achievement of better financial services than ever before. It would be a pity if regulation inhibits the growth of social media in finance and, to be fair, we believe that this is unlikely to happen. Many institutions will need outside help with achieving compliance in this field but the real danger may be that financial regulation of social media becomes unduly restrictive or, even worse, an excuse to stop necessary changes to the industry.

 
Subscribe