Several high-profile cases have recently highlighted regulatory interest in digital communications, particularly communications with the public. Panelists at FINRA’s Annual Conference discussed digital communications, including customer disclosures and marketing, off-channel communications, and the use of financial influencers.
Disclosures and Marketing Materials
In the past, disclosures have been a dry, often unread addition to account documents. New technology, including Artificial Intelligence (AI), can be used to present disclosures in a more interactive and even fun way to customers. Firms can partner with FINRA to design digital disclosures and marketing materials to ensure compliance. Member firms have an assigned analyst they can contact when they have questions, or to voluntarily file materials for review. The FINRA Risk Monitoring Team can also assist with questions in this area. FINRA reminds firms that all communications with the public must be fair, balanced and not misleading in compliance with FINRA Rule 2210.
Mobile Apps
For firms using mobile apps, FINRA is looking at customers’ ability to access disclosures after initially agreeing to them. FINRA is also focused on whether the client is clear on exactly what type of account or services they are signing up for when using an app. The 2023 FINRA Exam and Risk Monitoring Report includes more mobile app guidance.
Off-Channel Communications
Off-Channel Communications has become a major focus for regulators and FINRA member firms. Conference panelists had several observations about recent cases and investigations that may be useful for creating compliant policies and procedures:
- Firms have had policies that did not allow off-channel communications, but these were not being followed, even at the senior executive level; firms did not ensure compliance with the policies around firm-approved digital channels.
- There is currently no SEC tolerance for failure to supervise off-channel communications. Fines are very high, and firms have had to acknowledge wrongdoing in recent cases.
- Firms should make clear in WSPs which communications must be captured on firm channels. For example, should business-related communications only be captured, or are all communications including logistical messages required? Additional digital communications training should cover this and include examples and sample responses to noncompliant texts that employees may receive. Certifications to the firm policies (more often than annually) are important, as well as reviewing for red flags and following up on them.
- The SEC has given consideration to firms that self-report issues; they may receive lower fines.
- FINRA examiners will be reviewing for policies and procedures, training, exceptions, compliance tools, attestations, and discipline around these communications.
Financial Influencers
Some firms are partnering with financial influencers as a marketing and communications tool. There are many risks involved but panelists agreed that firms can embrace this type of communication and build guardrails around it to stay compliant. Panelists offered some suggestions for compliance in this area:
- Transparency of financial holdings and transactions of influencers are important to protect against influencers who promote one thing and do the opposite with their personal finances, or who use their platform to benefit themselves.
- Partnering with influencers who are registered and vetted can be helpful to reach younger generations.
- Record keeping and supervision of what the influencers are saying are very important. FINRA is conducting a sweep in this area currently.
- To be more conservative, firms can partner with influencers to promote their brand only, not products or services. This can include general education but not specific recommendations. Pre-approved scripts and a review of what is actually said are good supervision tools.
- Having a strong agreement in place regarding record keeping, requests from regulators, and limitations on what can be said to the public about the firm is important.
Keeping up with new trends in a quickly changing environment is a challenge that everyone in the industry faces. It is helpful to have representatives from Compliance and Legal involved in new innovations at the beginning of the process. This saves time and frustration for everyone. Firms can have a committee in place to assess new technologies, including risks and opportunities. The committee can have a checklist of what to consider during the review and ask for demos to learn more.
FINRA wants to partner with firms on the front end of new technologies to help ensure compliance and understand how member firms are using them to communicate with customers. Panelists agreed that new technologies can have a positive industry impact and can be embraced in a thoughtful, compliant way.
Oyster’s team of former CCOs and regulators will work with your firm to ensure that your communications policies, supervision and record keeping achieve compliance. Our consultants have the knowledge, experience, and resources to provide guidance on social networking websites and business communications. Our experts will help you prioritize, address and respond to risk with reasonable and practical solutions.
Keep your compliance program on track and minimize risk with Oyster Solutions compliance management software. Workflows specific to your firm’s policies ensure that your policies are followed and enforced. From attestations and marketing approvals to testing and surveillance, you’ll have the information and tools you need at your fingertips to keep your firm compliant. When you use Oyster Solutions compliance software, your firm has a central repository for documentation and the appropriate operational controls, supervision and compliance oversight you need.
