FINRA Spot Checks Call for Social Planning

The FINRA notification last week -- that the regulator will spot-check social media communications of its members -- shouldn’t come as a terrible surprise to the industry.

FINRA and other regulators within the U.S. and worldwide, have consistently conveyed that social media is just another form of written communications and ought to be treated as such. For the last three years the regulator has also provided increasingly specific guidance to help firms interpret existing rules and regulations both in Regulatory Notices (10-06, 11-39, 12-29) and at multiple conferences.

The announcement that social media would be included in examinations is further validation of the growing use of social within the financial sector to communicate with clients. It also underscores the need for firms to thoughtfully develop clear policies on the use and methodology to supervise and manage usage, content and engagement.

Firms need to demonstrate they have identified and mitigated risks that include data leakage, incoming threats, legal and compliance and user behavior, before they tap the opportunity of social media. Firms will require detailed usage policies, effective user training and technology to enforce both.

The good news for firms is that the June Targeted Examination Letter outlines the information firms should be prepared to show an examiner. Information includes the rationale of why the firm is using social media, details about the sites the firm is using, how the sites are being used, supervisory, monitoring and training procedures, and a list of the top 20 producing registered representatives using social media to interact with retail customers, including which networks they are using, their full names, CRD number, and dollar amount of sales and commissions. 

The first step in creating effective policies is to leverage the following industry best practices:

• Spark a conversation, don’t pitch a product. Just as pitching products or making investment recommendations is problematic for the regulators due to suitability requirements for a registered person, it’s also the fastest way to turn off your followers on social media. A better approach is to create compelling content that attracts your audience’s interest, is useful and promotes engagement. 
• Educate and train advisors. The regulators agree that training on appropriate use of social media is essential. This requires training that includes compliance and regulatory requirements, but training shouldn’t stop there. Education should also show users how to share their own insights, in their own voice.
• Be authentic. Authenticity is a key to social media success. Your financial advisors are taught how to speak effectively, how to sell over the telephone and work with email. Similarly, they need to learn how to use social effectively.

By creating a solid social media policy, putting technology controls in place and carefully training employees to be social, you will not only develop a winning social media program, you will be ready for FINRA’s spot checks. 
Joanna Belbey is a social media and compliance specialist with Actiance. You can follow her on Twitter @Belbey.