FINRA Reviews Rules Around Social Media Influencers

On July 22, Robert Cook, CEO of FINRA, revealed that a large-scale campaign involving financial services influencers was “coming.” It eventually arrived in September, following the Securities and Exchange Commission and asked for comment on “digital engagement practices” used by investment advisors, brokers and traders. The Securities and Exchange Commission has been more interested in how to use tools that appeal to investors’ behavioral tendencies—a category that influencers arguably fall into—to influence their activities.

For the FINRA sweep, the main focus has been on broker and trader practices’ use of social media influencers, or ‘Finfluencers’ for pun lovers. Specifically, the survey focused on customer acquisition through social media channels, as well as how companies oversee activities and communications related to paid influencers. FINRA declined to reveal how many companies were targeted in this test, but it seems clear that the ultimate influencers have been identified as a cause for concern.

GameStop effect

The GameStop saga last January shed light on the behavior of influencers. Information posted on social media forums, such as Reddit, encouraged users to invest and caused the meme’s stock price to skyrocket. These stocks included GameStop, Nokia, Blackberry and AMC Entertainment, with GameStop stock prices rising more than 1,000% in just two weeks. This alarmed institutional advisors, not only showing the influence of influencers, but also the volatility and vulnerability of the market.

Subsequently, insurer MassMutual was ordered to pay a $4 million fine as part of a settlement with Massachusetts regulators. The settlement involved the behavior of Keith Gill, a former employee and internet trader known as “Roaring Kitty”. Jill’s pseudonym achieved viral fame, and was very successful in his mission to drive up the prices of the respective stocks. The state regulator ruled that the company failed to disclose the activities of its trader, who promoted the stock in his spare time while working for the company. MassMutual accepted the charges in order to put the matter behind it, and agreed to an overhaul of its social media policies.

MassMutual may have been punished for the odds in the midst of a national scandal, but their punishment illustrates the responsibility companies must bear for their employees’ online behavior. Although employees are prohibited from discussing securities on social media, the regulator has ruled that MassMutual “does not have reasonable policies and procedures in place to detect and monitor “such activity.” Firms must be able to demonstrate such operations, and it appears that they will not Pleas of ignorance are accepted.In this case, an eDiscovery social media solution could have saved the company a significant amount of time and money.

Define influencers

For most of us, a social media influencer is someone who has built a good reputation, either through fame or for their knowledge and expertise in a particular topic, and thus many people pay attention to them. They post regularly on their favorite channels and thus are able to generate exposure to different (often larger) audiences of the brand’s audience.

The breadth of FINRA’s own definition poses some problems. At their discretion, the term “Social Media Influencers” or “Influencers” means “any third party that the Company contracts with or compensates to provide social media communications.” External communications agencies would certainly fall into this category, and their role and ethics are quite different from that of a typical influencer, with one key distinction being the audience they are communicating with.

Agencies work on behalf of the brand. They learn (or even dictate) brand messages, interact with their existing followers, and wear their masks. On the other hand, influencers usually comment from an outside perspective, which leads to additional exposure and provides a seal of approval. To get back to GameStop, that could include endorsing, as a poignant example, Reddit’s chatroom ‘r/wallstreetbets’, which has 4.8 million members and has become a symbol of the indictment against the Titans of Wall Street.

If FINRA appears to include outside agencies in its definition of social media influencers, it is not necessary to change the rules of the game in terms of compliance procedures; Agencies tend to use the brands’ social media profiles anyway. However, what it does do is highlight the necessity of capturing all of a company’s social media, regardless of whether they’re actually posting or not.

Where the sweep has greater impact by not only ordering “(1) any social media communications the Company posts on the Influencer’s social media account(s) but “(2) any social media communications the Influencer posts on any social media platform about the Company.” This puts it on businesses the responsibility to keep a record of all social media output of influencers relevant to their brand, which may cause logistical difficulties around privacy and data ownership, but nonetheless it needs to happen in order for these relationships to become viable.

How do you maintain compliance?

Social media channels are ephemeral. While logs can be accessed back to any date on the same platforms, these posts are not stored statically – they can be deleted or edited retroactively. Archiving is the most effective way to preserve your social media data, ensuring that nothing is lost in the case of these scans, which come with greater frequency and are increasing demands for the required information.

With new regulations looming, this time around influencer communications, it’s becoming clear that keeping all of your data is the safest option, as the scope of regulatory breach continues to expand.


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