Why FINRA’s Spot Checks Are a Milestone for Social Media

Last week the Financial Industry Regulatory Authority (FINRA) announced that it was conducting its first round of spot checks on financial institutions to determine their compliance with the authority’s social media regulations.

The authority requested that the firms involved in the spot checks provide details on their corporate social media accounts and policies regarding communications on those sites, including the people who are authorized to post on the accounts. The firms also need to provide what guidelines they have in place to ensure compliance. Lastly, the firms have to list their top 20 representatives by commissioned sales and how they use social media for business.

The spot checks are an acknowledgment of the growing importance of social media, according to Victor Gaxiola, a social media subject expert at Actiance.

[See Related: How to Leverage Social Media for Business Results]

For those financial institutions that have invested in social media compliance, this will help them gauge how well they are aligned with the things that FINRA is interested in, Gaxiola says.

He also acknowledges that some financial institutions have sat on the sidelines rather than determine a social media compliance policy because of ambiguity in the original FINRA regulations. “A lot of organizations have been waiting to interpret the original guidelines on what kind of training they need to offer and what they need to archive,” he explains.

Thanks to the spot checks these firms will now have a clearer picture of FINRA’s demands to move forward in building a compliance policy, Gaxiola suggests.

But the spot checks will prove difficult for some financial institutions to complete, says Devin Redmond, the CEO of NEXGATE, which assists companies in managing and protecting their brand on social media. “A lot of financial institutions don’t know all of their accounts. New and existing employees - and different departments - create new [social media] accounts all the time,” Redmond remarks.

But it is probably intentional that some of the requests in the spot checks may be difficult for some firms, Redmond says. “If this was email these firms would have policies and reporting in place. Now they have to apply that same rigor in social media,” he reasons.

Financial institutions should be prepared for regulatory changes in the future as a result of these spot checks, Redmond advises. While these spot checks ask firms to provide their policies for enforcing social media compliance, down the road Redmond expects them to also ask what actions firms have taken in line with those policies. Other agencies, such as the SEC, may also change their requirements around communications through social media. FINRA has jumped ahead of the other regulatory agencies on social media and it would be reasonable to expect the other agencies to catch up, Redmond explains.

To achieve compliance Redmond advises banks to create a “living” inventory of their social media accounts that is updated weekly, and examine their accounts more closely with an audit every quarter.

The attention that FINRA is paying to social media and the effects that these spot checks will have on the industry show that social media has reached an important point in its growth in financial services. Institutions now have a better idea of what regulators want and how to move forward with a social media strategy that is compliant. Regulators will likely expand the spot checks and regulations will be updated to reflect their findings. Everybody will have to pay more attention to this channel. Social media, which is often associated with college kids in their dorm rooms, is now grown up as far as the financial services market.

“This is an exercise in the level of maturity of social media in financial services,” Victor Gaxiola of Actiance says. “When I started here a year ago more of the conversations I had were along the lines of ‘Why should I use social media?’ Now it’s about ‘How should I use social media?’”

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio