Finra today published a “best practices” update detailing what policies and procedures it expects to see from broker-dealers’ using social media to acquire customers.
The findings are a result of the sweep exams the self regulator launched in September, 2021.
The update summarizes practices firms have implemented “at this point in the sweep,” which has so far focused on firms’ use of social media influencer and referral programs to promote their products and services and recruit new customers.
The report also focused on so-called “finfluencers,” or influencers who impact the financial decision-making of their viewers. Finra, which acts as a private self-regulatory organization for the securities industry, said it is also examining referral programs in which firms pay individuals to send them new customers.
“Finra is committed to being at the forefront of evolving regulatory trends that impact investors, such as firms’ practices and programs relating to social media influencers or ‘finfluencers,’" Greg Ruppert, executive vice president of member supervision at Finra, said in a statement.
“We hope firms will use this update as an opportunity to look at their practices in this space and consider any potential regulatory obligations,” Ruppert added.
The best practices firms should consider when evaluating their social media influencer and referral programs include determining whether their practices and supervisory systems are reasonably designed to address relevant risks, Finra said in the update.
Finra said such practices include the following:
• Maintaining written supervisory procedures focusing on social media influencer and referral programs.
• Considering additional controls for social media influencers who have a relatively large social media presence, including additional requirements for programs managed by member firms, affiliates or marketing agencies.
• Addressing program participants’ compensation.
• Updating their WSPs on a regular basis, in response to program developments, regulatory changes or industry trends.
Finra said it wants to see firms evaluate potential social media influencers’ backgrounds to see if they mesh with the firm’s compliance program.
The regulator also wants firms to provide training that defines what conduct is permitted and prohibited for social media influencers, and detail in records how the individual fits with the firm’s referral program-related compliance, including in the area of managing reputational risks and concerns.
Overall, Finra said firms should maintain records of social media influencers and their referral program communications with the public, consistent with securities laws and Finra's recordkeeping obligations.
“These selected practices may help firms evaluate whether their practices and supervisory systems are reasonably designed to address risks related to social media influencer and referral programs,” the regulator said.
The second part of the review will address firms’ privacy notices and the options they provide customers to opt-out firms’ collection and sharing of their usage information, Finra said.