Finra urges brokers to increase control and oversight when using finfluencers

Social media has provided brokerage firms with new ways to market, but Finra warns them to scrutinize and monitor the influencers who help them find new clients.

In September 2021, Financial Industry Authority Inc. began testing to find out how its member firms use TikTok, Twitter, Instagram, Facebook and other social media platforms. On Wednesday, he released an update on the initiative, which included best practices for enforcing compliance to attract so-called financiers.

Firms should distinguish between social media influencer programs and referral programs and consider “additional controls for social media influencers with a relatively large social media presence,” Finra said in the report.

The regulator recommended that the experience and previous activities of financiers be assessed for potential compliance and reputational risks. He also recommended that firms spell out prohibited behaviors of financiers, provide training on their use, and prevent the disclosure of information about private clients.

“This is a reminder that greater access to retail investors requires greater vigilance,” said Jessica Rees, partner at Ropes & Grey. “It’s so easy to say something and hit publish without thinking about the consequences. Every post can matter.”

The update allows Firna, the broker-dealer self-regulatory body, to take another bet on a popular trend that is also being scrutinized by the Securities and Exchange Commission. The Securities and Exchange Commission (SEC) has included a proposed rule for digital engagement practices for investment advisors in its regulatory program.

Finra stressed in the review that brokerages must ensure that their oversight systems are up to the task of monitoring their social media activity and keeping it within limits.

“This is a good opportunity for firms to review their procedures in this area, even if they did so in response to initial [sweep] letters,” said Tim Nagy, partner at Mayer Brown.

The update is Finra’s way of being open about its expectations.

“It’s better than firms being forced to read enforcement action on the teaspoon,” said Nagy, a former adviser to Finra’s market regulation department.

Finra wants to see more than updated policies and procedures, Rees said. He is looking for evidence that firms are putting them into practice.

“This is an additional step that we are increasingly seeing from regulators,” she said. “Tell us what you do. Tell us how you train your people and follow these procedures.”

Finra did not specify in the update how long the purge will last.

[More: Bad apps + Bad actors = Bad news for advisors]

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