The Financial Industry Regulatory Authority (Finra) is launching a round of examinations that focuses on how brokerage firms use social media and "influencers" to recruit clients.
“Finra is conducting a review of firm practices related to the acquisition of customers through social media channels and how firms manage their obligations related to information collected from those customers and other individuals that may provide data to firms,” Finra stated in a new exam letter.
Finra President and CEO Robert Cook warned earlier this year upcoming sweep exams would focus on social media.
The exam sweep comes a week after securities regulators in Massachusetts fined MassMutual $4.75 million for failing to supervise social media use by some of its agents, especially Keith Gill, who went by the handle “Roaring Kitty.” The social media influencer was seen as a central figure in the trading craze that pumped up the balue of GameStop stock earlier this year.
Regulators want to know just how far broker-dealers, their advisors and their hired finfluencers go on social media to acquire customers and move markets.
Firms targeted by the Finra sweep exam are being asked to provide all the social media communications that were posted or disseminated to vendors to post dating back to January 1, along with the date of each post.
Broker-dealers also need to provide examiners with detailed answers about how they use and compensate finfluencers and other venders for client acquisition.
Materials that firms are being asked to provide include the following:
• Descriptions of how the firm finds and/or contracts with individuals or entities to provide social media, “including whether and how the firm uses third parties, vendors, or services to find, contract, and/or compensate individuals or entities for Social Media Communications,” Finra said.
• Any engagement letters, contracts, agreements, or any other written, or offered arrangements that the firm and affiliates have offered to contract with compensate individuals or entities to provide social media.
• Descriptions and the identify of any individuals or entities the firm or affiliates maintain “ non-written agreements, or offers, to compensate individuals or entities to provide Social Media Communications.
• Whether each social media communication was approved by a registered principal of the firm, as well as a statement on firm’s supervision policy regarding such vendors.
Firms are also being asked to describe the compensation and any bonuses that firms and affiliates pay to finfluencers, and whether the firm pays referral fees. Examiners are also asking what background information is used to consider or avoid third parties.
Additionally, Finra wants copies of any ads and emails firms and affiliates use to recruit finfluencers.
Last, firms are being asked what client information is shared with vendors and what limits are being put in place to safeguard use of client data.
This article was provided by Bloomberg News.