Securities firms have gone from total bans to allowing highly monitored social networking
Financial services firms have gone from a total ban on social media networks to a tentative embrace of them that includes asking new hires to agree to have their social media activities closely monitored, according to industry observers.At the same time, regulators have stepped up their audits of social media activity and are citing firms for potential violations.
Cathy Vasilev, vice president at Red Oak Compliance Solutions, a compliance consulting firm based in Austin, Texas, says she knows of two firms that have had surprise audits focused solely on social media activities. “The regulators just wanted information about social networking,” Vasilev says. During the audit, the regulators confirmed that employees at the firm were using social media. “They were then asking, ‘Did you approve it? What’s your policy?’
Surprise audits “tend to scare the larger firms because they have deeper pockets to pay these fines,” and, in response to the regulators, large firms are definitely requiring new hires to agree to the closer scrutiny, says Vasilev, whose company serves broker/dealers and registered investment advisers. The fact that firms are allowing employees to exploit social media for business purposes—although they’re being highly monitored—is a good sign that firms have reconsidered their previous bans, she says. It’s also an indication that firms are listening to employees that want firms to lift the ban.
“There haven’t been any big fines yet,” adds Vasilev about the recent audits. “The regulators are citing firms but they haven’t come back with an enforcement proceeding. They’re waiting to see what they come up with to fix it. If it was a bad enough blip, they’d fine you.”
The regulators have the right to review all of the blog postings, Tweets and other social media communication that emanate from a firm’s employees, Vasilev points out. So all firm-related messages and interactions have to be archived, stored and made available for meta-data searches by the regulators “because it’s all discoverable.” Many firms ban Tweeting, for instance, because the high volumes of these messages create huge monitoring, storage and archiving problems, she says.
The Financial Industry Regulatory Authority (Finra) issued a notice this past January to provide guidance on how firms should manage their blogging and social media interactions—a clear sign that it has been paying attention to social media activities. “FINRA has brought disciplinary actions regarding interactive electronic communications that contained misleading statements about investment products that the communications recommended.”
Not surprisingly then, smaller firms have not been as affected by the regulatory scrutiny because many of them have shied away from social media. “They’re still wrapping their heads around how they can do it, still be compliant and not bankrupt the company,” Vasilev says.
The smaller firms are not alone in their hesitancy. Much of the industry has kept its distance from social media networks as indicated by the results of a membership survey released last week by the International Securities Association for Institutional Trade Communication (ISITC).
In the survey, more than half of ISITC members, or 57 percent, said that they are not using social media for business purposes. Those firms that do use these sites describe their participation as minimal at the business level, yet 22% of survey respondents report using the LinkedIn network for sales or marketing purposes, 16% of companies are blogging or using Twitter and no respondents are using the YouTube online video networking site.
Vasilev says respondents’ aversion to YouTube is justifiable. “Videos on YouTube are not a good thing for financial services firms,” she says.
For starters, scripts and videos advertising financial services have to include disclosures and disclaimers and have to be reviewed by Finra, Vasilev says. This usually means a six-to-eight week wait and a toning down of the message, not to mention another wait via a firm’s internal compliance review. “If video advertisements touch on certain topics, there are mandatory filing requirements,” Vasilev says. “That’s why when it comes to videos, everyone says ‘No.’ ”
Given the realities of the laws and regulators, many in the financial services industry have to “sadly give up some of their personal privacy in order to keep their careers on track,” says Amanda Vega, a public relations, social media and compliance consultant. “In general, though, most people aren’t misbehaving online, so the monitoring shouldn’t bother them much. Financial services firms and their leaders have a higher necessity of disclosure than other industries for a myriad of reasons.”
Closely monitoring new hires and current employees can be “completely practical if you have the right software and teams in place,” Vega says.
In addition, one of the best practices that firms should consider is software that “scans and saves the conversations being had by employees, coupled with a live person doing analysis and review,” Vega says. “Progressive firms should bring in social media experts that also have financial services experience—and not just talking heads or ‘influencers’ that have a million followers on Twitter—but real practical persons.”
Another best practice would be to have policies, written by special counsel instead of general counsel and “are presented with real case studies—as most violations are not malicious in intent, but practical mistakes.”
Along those lines, staff should be thoroughly trained so they know what they can and cannot do, Vasilev says. For instance, employees cannot, even on personal sites, mention the name of their employer because federal regulatory requirements kick in even at that level. In addition, the policies must be very specific and there should be spot checks via auditors or the firm on a quarterly basis to see if employees are conforming to them. Firms should also be clear about which social media sites will be open to staff and which ones are prohibited.
As for vendors, there is no single provider that can do it all, Vasilev says. “You need a vendor who will work with you and be open and honest about the limitations of their system,” she says. “If they’re not open and honest with you, and you find out six months later and it causes you to get a fine, you’re not going to be happy firm. It’s not just having the technology solution; it’s having a relationship with the vendor.”
Vasilev and Vega say that some of the vendors serving this emerging field are Smarsh, SocialWare, Kronovia, Arkovi, Actiance and SiteQuest Technologies.
Ultimately, there are two schools of thought on this issue, Vasilev says. One school says that “once you put your registered rep hat on, you can never take it off and therefore we want to see everything to make sure you’re not doing something you’re not supposed to.”
The other approach stresses that policies and procedures are “supposed to be reasonably designed to prevent things from happening. But, let’s face it, we are all are human.” Sometimes things will happen. Her policy is: “When you go home, if you’re not using social media for business purposes, I don’t want to see it.”
When she’s at a client site, she does require a rep to “pull up their personal Facebook” for review by an auditor. “That’s as far as it goes,” she says.
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