Elon Musk, DSA and the Marketing Rule: What It All Means for Social Media in Finance
It is amazing to see how one $44B transaction can raise so many questions.
But that is exactly what has been produced by Elon Musk’s bid to take Twitter private. Questions that include how far first amendment protections can, should, or will be extended, and how the spread of misinformation in the public square will change if content moderation practices are changed.
This, in addition to questions of how the private ownership of a public social media network will protect against the promotion of one’s own brands and interests. As expected, most major brands and their advertising dollars are watching very closely, given word that Musk is investigating new approaches to monetize commercial use of the platform.
While this attracts headlines, Musk does not hold a monopoly on recent news pertaining to social media and its impact on business practices. Consider the following:
- The European Union just recently enacted its Digital Services Act, which will cause social media platforms to take greater responsibility for the content that appears on their platforms
- The UK’s Financial Conduct Authority (FCA) just released its 2nd half of 2021 review, where it found that 76% of social media advertisements required revision or withdrawal because of UK Financial Services rules violations
- In a recent speech, former U.S. President Obama advocated for a revision to Section 230, which is the current legal framework drawing the line between content moderation and liability for user posts on social platforms
So, given the reality of greater regulatory scrutiny along with the possibility of increased noise on one of the leading platforms, one might ask — is social media really worth it for regulated firms?
This point was raised in our webinar with SIFMA’s Melissa MacGregor, who stated that she sees a “delayed reaction” from FINRA-regulated firms in response to the SEC’s updated Marketing Rule (206(4)-1), which is moving closer to late 2022 active enforcement. MacGregor noted that the modernization and additional clarity around advertising and testimonial rules would ensure that social media remains a “big driver in marketing strategies,” despite greater scrutiny from recent FINRA spot exams in exploring firms’ social media practices.
*Recommended Reading: Social Media Capture and Archiving for SMB Financial Firms
Examining social media practices at your firm
When considering the adjustments that firms can make in their use of social media, MacGregor’s point of social media as a business driver should not be lost — financial services firms that embrace new communications sources continue to see benefits to their business. For example:
- According to Putnam’s most recent Annual Social Media Survey, 98% of financial advisors using Twitter direct messaging gained assets — tied for the highest percentage of any social platform
- Among social media platforms, financial advisors continue to report the most success connecting with high-growth potential retail investors via Instagram and TikTok
$44B aside, this discussion does not just center on the use of a single platform (or one that now lags others in terms of growth and popularity). It is about digital communications as a whole. Today’s leaders will inevitably be joined and eventually surpassed by those that drive greater engagement and investor loyalty by incorporating the latest gamification feature.
Firms should consider the following to stay in front of the opportunities and growing complexity of managing social media.
1. Audit your social media platforms and strategies
Given the increased scrutiny over social media practices, firms should revisit the original assumptions made in investing in their social presence. At the firm level, corporate-owned social accounts are likely to encounter a different signal-to-noise ratio than envisioned a few years ago. This should raise questions about the availability of measures to protect a firm’s brand against a possible increase in unmoderated misinformation, as well as options for shifting those investments towards platforms with greater content moderation protections.
2. Reassess the social media cost/risk/benefit equation
Given a recent spike in regulatory fines related to digital communications, as well as the uncertainty of new monetization models, the time to re-evaluate the economic equation of specific digital communication tools is now. Considering that the arrival rate of new sources requested for approval by business teams has not slowed, today may be the opportunity to begin measurement of the business outcomes achieved over the past year on each supported digital platform.
Ways to measure this include growth in usage of that platform, assets gained, as well as qualitative feedback from employees on the impact of that tool on client engagement and satisfaction.
3. Operationalize your policy updates to avoid a mishap
Given the dynamic — and individually distinct — nature of social media platforms, firms should consider increasing the frequency of inspection for new features or capabilities of tools that they already support (e.g., auto-generated transcripts, whiteboards, bots, etc.) to ensure that their use is clearly outlined within retention and user policies.
Similarly, given recent increases in the regulatory inspection of social media practices outlined within FINRA’s 2022 Exam Priority letter, firms should be examining written supervisory procedures (WSPs) to ensure that the use of social media is conforming with requirements outlined in Regulation S-P as well as other requirements outlined in FINRA Rule 2210 (Communications with the Public), such as flagging complaints that arise from the use of social platforms.
4. Monitor for prohibited networks more frequently
More firms are now periodically inspecting for the use of prohibited tools (e.g., looking for breadcrumbs indicating that a specific platform like Discord is being used), but practices remain ad-hoc and semi-automated. Given recent developments, those practices should move from ad-hoc to automated, with reporting that can support the firm’s defense against regulatory scrutiny that policies surrounding prohibited networks are monitored and actively enforced.
Defined policies and lexicons to uncover breadcrumbs can be complemented with advanced analytics tools. Undercover patterns and anomalous behaviors can be flagged to identify the use of dark-corner social tools that are not currently supported by the business.
5. Understand the new Marketing Rule and the role of external promoters
Before engaging promoters, assess if you can comply with the significant compliance and supervision oversight requirements under the Marketing Rule. The Rule specifically prohibits the use of testimonials and endorsements in an advertisement, unless the adviser satisfies certain disclosure, oversight, written agreement, and disqualification provisions.
But how risky is it to engage a non-affiliated person as a promoter for your firm? Will they understand the disclosure requirements? Will they be able to understand the applicable regulatory obligations, particularly rules for communications with the public and other content standards?
Your training and procedures should take these items into consideration. How will you capture, retain, and supervise promoter content? Maybe you pre-approve their content or pull samples to assess compliance. The less risky option would be to engage knowledgeable employees as “finfluencers.” This approach can more easily function within your current procedural and supervisory framework.
Regulated organizations must keep pace with evolving communications technology, including social media. With Smarsh, you can capture and archive LinkedIn, Twitter, Facebook and other social content to help your organization stay compliant with regulations and legal initiatives.
Is social media in financial services worth it?
We can’t say for sure if firms should or should not use social media for business. But social platforms are powerful tools that allow for ongoing, direct engagement with potential investors. With the right risk mitigation plan, and a compliance solution that can preserve and monitor social media activity, taking advantage of a platform like Twitter can be a business boon, and help keep regulators at bay.
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