Revealing the wrong financial data on social media, or in any other public forum, can land an employee in hot water in any industry. The ex-CFO of a clothing retailer learned that the hard way when he got fired after tweeting a hint about the company’s earnings before they had been officially released to investors. For those who work in the tightly regulated financial industry, the stakes are even higher.
The risks associated with social media is the reason one of the world’s biggest investment banks, Goldman Sachs, didn’t enter the Twitter minefield until 2012. It’s also the reason many other financial companies have been similarly reluctant to join the social media fray.
And, as a growing number of financial institutions overcome their fears and start using social media to attract and engage customers, social media compliance training is more important than ever for financial professionals.
Technically, regulatory organizations like the U.S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA) and Securities Investor Protection Corporation (SIPC) haven’t created any rules that specifically govern social media use.
What they have done is make it clear to financial firms that their behavior in the digital realm must comply with existing federal securities laws.
Interpreting how these laws apply to social media can be tricky. The Harvard Business Review points out that financial organizations end up being “scrutinized by an alphabet soup of state and federal regulators to ensure investors enjoy a level playing field.”
“All activity — every last post, tweet, check-in and poke related to business — must be recorded and archived. Firms can be held liable for tweets fired off from an employee’s iPhone, outside the office, and after working hours. Even something as innocuous as clicking the Like symbol next to a Facebook post could run afoul of the SEC.”
The risk is high enough that many financial companies have decided it’s just not worth it. In a 2014 compliance audit, FINRA found that out of the 23 brokerage firms examined, only 16 were using social media. And in June, U.S. News & World Report declared that just two out of three financial advisors use social media to support their business.
Despite the risk, the number of financial institutions joining the social media game is growing. As more financial institutions discover that their most desirable customers are heavy social media users, more have taken the leap — and it’s paying off. Investors, particularly young ones, like relating to their financial advisors in a more personal way. It’s an effective strategy for building a brand and emotionally engaging an audience.
To cash in on the brand-building potential of social media without tripping over compliance issues, financial companies must develop strong policies for employee social media use that align with securities laws. They also need to provide ongoing social media compliance training to ensure all employees thoroughly understand the rules.
In their Social Media Guide for Financial Institutions, financial attorneys Chapman and Cutler LLP encouraged firms to craft a comprehensive social media policy that encompasses:
It’s also a good idea to put extra resources into the problems areas where financial firms often falter: recordkeeping, endorsements—and most importantly training.
Employees need thorough training to help them understand and follow social media policies. In fact, one investment firm was sanctioned by a New York state securities regulator for, among other things, failing “to provide sufficient and appropriate training to employees” who used Facebook and LinkedIn.
With social media audits on the rise, financial professionals must be especially careful about complying with securities regulations online. But that doesn’t mean they should avoid social media altogether. With the right policies and social media compliance training in place, financial firms can minimize the risk of violations while taking advantage of invaluable opportunities to engage with potential clients.
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