FINRA Reviews Rules Around Social Media Influencers - We Can’t Say They Didn't Warn Us

On July 22nd, FINRA CEO Robert Cook revealed that a sweep related to financial services influencers ‘is coming’. It eventually arrived in September, hot on the heels of the SEC requesting comment on the ‘digital engagement practices’ used by investment advisers and broker-dealers. The SEC was most interested in how tools are used that appeal to investors’ behavioral tendencies — a category which influencers arguably fall into — to affect their activities.

For the FINRA sweep, the main focus was on broker-dealer practices’ use of social media influencers, or ‘finfluencers’ for the pun enthusiasts. Specifically, the sweep focused on the acquisition of customers through social media channels, as well as how firms supervise activities and communications related to paid influencers. FINRA declined to reveal how many firms were targeted for this exam, but it seems clear that finfluencers have been identified as a cause for concern.

The GameStop Effect

Last January’s GameStop saga put influencers’ conduct firmly in the spotlight. Information posted on social media forums, such as Reddit, encouraged users to invest and led to ‘meme-stocks’ prices climbing rapidly. These stocks included GameStop, Nokia, Blackberry and AMC Entertainment, with the GameStop share prices soaring over 1000% in just a fortnight. This ruffled the feathers of institutional advisers, and demonstrated not only how impactful influencers could be, but also the volatility and vulnerability of the market.  

The insurer MassMutual was subsequently ordered to pay a $4 million fine as part of a settlement with Massachusetts regulators. The settlement involved the conduct of Keith Gill, a former employee and online trader known as “Roaring Kitty”. Gill’s alias achieved viral notoriety, and was highly successful in its mission to boost the share prices in question. The state regulator ruled that the firm failed to detect the activities of their trader, who promoted the stock in his spare time while he was working at the company. MassMutual accepted the charges in order to put the matter behind them, and agreed to a complete overhaul of their social media policies.

MassMutual may well have been penalised over the odds in the midst of a national scandal, but their sanction demonstrates the responsibility that businesses must take for their employees’ conduct online. Although staff were prohibited from discussing securities on social media, the regulator decreed that MassMutual ‘didn’t have reasonable policies and procedures in place to detect and monitor’ such activity. Firms need to be able to demonstrate these processes, and pleas of ignorance seemingly won’t be deemed acceptable. In this situation, a social media eDiscovery solution would have saved the business a great deal of time and money.

Defining ‘influencers’

For most of us, a social media influencer is somebody that has built a reputation, either through fame or for their knowledge and expertise on a specific topic, and that many people therefore pay attention to. They post regularly on their preferred channels, and as such are able to generate exposure to different (often larger) audiences than a brand’s own.

The broadness of FINRA’s own definition poses some problems. By their reckoning, ‘social media influencers’ or ‘influencers’ mean ‘any third party with whom the firm contracts or compensates to provide Social Media Communications’. External communications agencies would surely fall into this category, and their role and ethos are completely different to that of a typical influencer, with one key distinction being that of the audience that they communicate with.

Agencies operate on a brand’s behalf. They learn (or even dictate) the brand’s messaging, interact with their existing followers, and wear their mask. Influencers on the other hand typically comment from an outside perspective, bringing in additional exposure and providing a seal of approval. To come back to GameStop, this could include endorsements to, as an influential example,  the Reddit chatroom ‘r/wallstreetbets’, which boasted 4.8 million members and has become a symbol of the charge against the titans of Wall Street.

If, as it sounds, FINRA are including external agencies in their definition of social media influencers,  it isn’t necessarily a game-changer in terms of compliance procedure; agencies tend to use brands’ own social media profiles anyway. What it does do, however,  is highlight the necessity to capture all of a business’ social media communications, regardless of whether or not they are the ones actually posting.  

Where the sweep has a larger impact is by requesting not just, ‘(1) any Social Media Communications posted by the firm on the Influencer’s social media account(s)’ but  ‘(2) any Social Media Communications the Influencer posted on any social media platform about the firm’. This puts the onus on businesses to keep a record of all influencers’ social media output relevant to their brand, which could cause logistical difficulties around privacy and ownership of data, but nevertheless will need to happen for such relationships to be deemed viable.

How to Remain Compliant

Social media channels are ephemeral. While records may be accessible back to any date on the platforms themselves, these posts are not stored immutably - they can be deleted or edited retrospectively. Archiving is the most effective way to preserve your social media data, ensuring that nothing is missed in the event of such sweeps, which are coming with greater frequency and increasing demands on the information requested. 

With new regulations on the horizon, this time around influencer communications, it’s become apparent that preserving all of your data is the safest option, as the scope for regulatory infraction continues to expand.