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Compliance Challenges and Regulatory Requirements Posed by Social Media

RayMcG Regular Contributor.
Regular Contributor.
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Over the past 20 plus years – cell phones, email, text messaging, and newer social media channels – have drastically changed the way we globally communicate and conduct business. Seemingly every day there is a new app that allows us to communicate and collaborate with our customers and colleagues. 

Social.jpgIn the United States, an estimated 81% of the population has at least one social media profile. Facebook continues to be the most popular social media channel worldwide, with an estimated 250 million users in India and 230 million in the United States. One recent study reported the most used social media channels worldwide are:

  1. Facebook
  2. YouTube
  3. WhatsApp
  4. Facebook Messenger
  5. WeChat

So with the increased usage of social media worldwide, it probably comes as no surprise that there is heightened regulatory scrutiny of these channels by the Financial Services Industry.

Last year there was an uptick in litigation cases involving social media posts, private messages and images. For example, the Financial Conduct Authority (FCA) of the United Kingdom recently fined a former investment banker £37,198 ($46K) for sharing confidential information over WhatsApp. 

The Financial Industry Regulatory Authority (FINRA) fined a firm because they failed to establish a policy and system for the approval, supervision, and retention of messages sent by the firm’s registered representatives using their social media accounts. Content posted by the registered representatives was oversimplified, incomplete and lacked the disclosures necessary to provide a sound basis for evaluating the facts communicated, including disclosure of FINRA member affiliation, relationships between FINRA members and named non-members, and identification of products and services offered by the member.

In November 2017, the Securities and Exchange Commission (SEC) released an investor alert urging the public to be extremely cautious about purchasing stock and other investment based on the endorsements of celebrities and others on social media. Potential investors were advised to conduct their own research and evaluate what was in their own best interests.

Keeping up with new social channels and how to effectively supervise them is a daunting task. Micro Focus recently conducted a survey of financial firms about digital and social media channel governance.  The survey results really speak to the challenges faced by firms and their compliance teams each and every day. Participants were asked to list their biggest challenges supervising digital and social media channels. 61% of the firms responded it was having an effective monitoring system in place and 55% indicated it was with supervision technology that could keep up with the pace of change in social media.

The survey also noted that firms are still spending excessive time reviewing emails and not enough time focusing on channels which could potentially pose more risk to their organization, such as social media.  Firms noted they focused approximately 77% of their time supervising email while only spending 23% of their time on non-email channels, such as social media. 

Most firms have an effective supervision process in place for email. But firms need to start focusing their time and efforts on the regulatory and reputational risk non-email channels can pose to their organization.  With the right technology and supervision strategy, keeping up with the supervision of non-email channels does not have to be so daunting. 

For additional information on the heightened regulatory awareness of social media reference, see FINRA’s Guidance on Social Networking Websites and Business Communications and Financial Conduct Authority’s Social media and customer communications.

The opinions expressed above are the personal opinions of the authors, not of Micro Focus. By using this site, you accept the Terms of Use and Rules of Participation. Certain versions of content ("Material") accessible here may contain branding from Hewlett-Packard Company (now HP Inc.) and Hewlett Packard Enterprise Company. As of September 1, 2017, the Material is now offered by Micro Focus, a separately owned and operated company. Any reference to the HP and Hewlett Packard Enterprise/HPE marks is historical in nature, and the HP and Hewlett Packard Enterprise/HPE marks are the property of their respective owners.