Social Media Poses Compliance Conundrum for Financial Institutions

by tom 18. March 2011 16:42

There was an interesting article posted on BankInnovation.net this week about the challenges social media poses to  financial institutions. New regulations from the SEC, FINRA, and the FSA in the United Kingdom are classifying Facebook, LinkedIn, and Twitter exchanges as public information that needs to be archived and “discoverable” in the event of an audit. Facebook posts are being classified as advertising and LinkedIn recommendations as endorsements, which means they fall under regulatory scrutiny. After all, you don’t want your broker tweeting stock tips. But this poses new challenges to financial institutions who are struggling to keep up with customer communications. As a recent report from Mercator Advisory Group notes:

“Financial firms that wish to excel at CRM must establish a presence and voice in most of the same online communities where their customers spend time. Increasingly, that means participating in social media of many types.”

In related news, a recent customer satisfaction survey conducted by MyCUsurvey reveals that credit unions are not attracting younger members. Part of that has to be due to the way that Generation Y and Generation Z like to interact with vendors.  They live online, talking to their friends by text and on facebookFacebook, and transacting their business on the web. Where banks are more sophisticated in their online banking strategies, credit unions don’t typically have the same resources. So even though banks and credit unions are struggling to harness social media as new channels to communicate with customers, it has to be part of a total online experience. Tweets need to turn into transactions with a click of a mouse or a touch of a smartphone.

So how are banks and credit unions addressing the challenges of tapping into social media without violating the rules? It’s a combination of common sense, proper oversight, and technology. Where financial institutions used to block online conversations altogether, they are now struggling to implement safe practices. Some are providing restricted access, allowing select individuals access to social media from IT-controlled computers to try to minimize missteps. Smarter institutions are adopting “best practice” guidelines with severe penalties for failure to follow the rules, such as termination for tweeting out of turn. And chief security officers and chief compliance officers are relying on technology to enforce the rules.

Vendors like Socialware and Actiance are providing technology platforms (both on-premise and cloud computing based) that give banks the ability to monitor, moderate, and archive online conversations as part of regulatory compliance. Granted, this imposes Big Brother restrictions on financial workers’ online activities, but the consequences of violation can be severe. FINRA levied $4 million in fines and initiated 34 disciplinary actions in 2011 for electronic communications violations.

So while social media poses a potential risk to banks and credit unions, the savvy institutions know they have to step up their online game to meet the demands of their customers. The rewards will far outweigh the risks, especially if they can be sure they abide by the regulatory rules.


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