“What Is” Social Media Compliance?

Social Media Compliance refers to conformance with regulations governing investors’ safety when securities firms are using social media websites such as Facebook, LinkedIn and Twitter to publicize their services and offerings.

The new rules for social media and financial services firms mainly ensure that employees are not exposing information that could put a firm at risk.

As more firms use social media as a tool for promoting business, it is essential for them to understand how to deal with the risks associated with sharing information via the web.

One of the major challenges associated with securities firms using social media sites is avoiding the release of sensitive information, and making certain that advertising and claims are accurate and legal.

Firms also have to maintain a distinction between the private and professional spheres. While many social media sites are used as personal social networking sites, the sharing of professional information can blur the distinction between the two arenas.

In order to mitigate these risks, regulators have been establishing usage policies in order to protect employees and firms from reputational damage and clients from identity theft.

To help firms navigate the social media realm, the Financial Industry Regulation Authority (FINRA) issued a requirement in January 2012, known as regulatory Notice 10-06, that requires employees to monitor content posted to a financial services firm’s social media sites. Other rules require advertisements and associated literature to be approved in advance.

The SEC has also reached out to many companies in the financial sector in order to review how firms are using social media for business purposes. As a result of the financial services reform legislation of the Dodd-Frank Act, hedge funds and private equity firms will soon become a part of this oversight.

Coinciding with these regulations, software providers have been creating systems to help firms better manage their social media compliance.

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