Compliance & Legal Industry Insight: Digital Communications Are Front and Center

Several sessions at SIFMA’s Compliance & Legal event touched on the use of digital communications. This focus wasn’t entirely surprising, considering the various related topics recently addressed by regulators, including:

• The SEC’s investment advisor marketing rule to incorporate evolution in communications technology
• Proposed changes to the immutability storage requirement outlined within SEC 17a-4
• The Presidential Executive Order calling for coordination on cryptocurrency regulation

In the Smarsh breakout session, “Digital Communications in the Hybrid Workforce,” (the highest-attended breakout session) we explored the concerns around social media practices — including the unauthorized use of prohibited networks and the impact of “Finfluencers.” We also discussed how to respond to the requirements outlined within the SEC cybersecurity rule — such as how to best respond to the 48-hour breach reporting requirement and third-party-risk assessment demands.

This will continue to create a challenge for resource-strapped compliance teams, but the indicators all point in the same direction: firms will continue to see new tools and greater adoption of digital platforms into the foreseeable future. It’s time to update policies, refresh training and modernize automated controls.

Other topics touched upon throughout the conference included:

Updated marketing/advertising rule
Conversations continue about how firms will respond to new definitions of advertising and solicitation proscribed under one rule — prior to the enforcement window, which opens in late 2022. While firms appear to appreciate the greater flexibility around the use of social media, many remain immersed in updating policies, procedures and disclosures to address the principles in the updated rule.

Remote work supervision
Firms are looking at where business takes place in this environment and whether their tools and oversight processes remain suitable, specifically as they relate to communications with the public. Panel discussions highlighted the need for supervision and monitoring of communications to include the potential use of prohibited networks to spot outside business activities (OBA).

Social media “Finfluencers” and gamification
This is a priority for the SEC, as they are looking at how firms are using social media to attract and refer clients, what controls are in place, and what surveillance is in place for Finfluencers. It’s been a record-breaking couple of years for new accounts, and particularly new retail investors. Regulators will begin to focus on protections for these activities.

Digital engagement practices (DEPs)
Panel discussions were focused on using digital engagement practices to engage with customers in a fun way with a focus on educating investors. Regulators appear to remain focused on protecting investors from manipulations (more frequent trading, trading outside their risk tolerance or sophistication, etc.). Panelists were clear that they didn’t feel a need for more regulations here, but that they would expect a regulatory notice to clarify some of the issues addressed in the regulator’s Request for Comment letter.