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Regulation and Compliance > Federal Regulation > FINRA

FINRA Targets 'Game-Like' Digital Platforms

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The Financial Industry Regulatory Authority is warning broker-dealers to be wary of digital platforms with interactive and “game-like” features, as they could run afoul of the regulator’s Communications With the Public rule when using them.

In its just-released 2021 Examinations and Priorities report — which summarizes exam findings from 2020 — FINRA points out that there was “a surge in new retail investors entering the markets via online brokers” last year.

Some “online broker-dealers’ apps, as well as those offered by other financial services and consumer-oriented businesses, include interactive and ‘game-like’ features, as well as related forms of advertising and marketing,” FINRA explained.

These features “affect many aspects of how firms interact and communicate with customers, from initial advertisements through the opening of accounts, recommendations and the presentation of different investment choices,” it said.

The FINRA report notes that it found broker-dealers that had failed to supervise and maintain policies and procedures for digital communications.

Some BDs, it says, are “not maintaining policies and procedures to reasonably identify and respond to red flags — such as customer complaints, representatives’ email, [outside business activity] OBA reviews or advertising reviews — that registered representatives used impermissible business-related digital communications methods, including texting, messaging, social media, collaboration apps or ‘electronic sales seminars’ in chatrooms.”

Robert Cruz, vice president, Information Governance for technology provider Smarsh, told ThinkAdvisor in an email that “FINRA highlights the need to inspect for outside business activities (OBA), which is significant given the recent news surrounding GameStop.”

‘Roaring Kitty’ Case

Case in point: Keith Patrick Gill, who’s using multiple identities — including “Roaring Kitty” — to promote GameStop on social media platforms. Gill’s BrokerCheck record says he’s still employed at MassMutual, which could potentially face failure to supervise charges.

When asked if MassMutual was concerned about potential FINRA charges, a MassMutual spokesperson told ThinkAdvisor Wednesday in an email that “We are reviewing this matter and have no further comment at this time.”

Gill’s BrokerCheck report states that he has been with MassMutual’s MML Investor Services from 2019 until the present. A MassMutual spokesperson told ThinkAdvisor, however, that Gill “is no longer employed by our company.”

According to Smarsh’s Cruz, “Supervisory technologies should be able to identify communications fragments indicating that may be indicators of employee misconduct — whether those are happening on approved networks, or may be occurring on prohibited tools.

“We see firms taking closer looks at their ability to inspect communications for misconduct that is reinforced by the language in the FINRA [exam] letter,” he explained.

Many firms, Cruz added, “have struggled in defending the line between personal and business communications — in particular since we all spend nearly all of our time on mobile apps and video conferencing technologies. Employees need to get their jobs done, and absent of more explicit guidance from firms, can easily gravitate toward tools that they are familiar with and are easily accessible, such as Signal, Telegram, WhatsApp and others.”

Smarsh, though, has seen “many firms strengthen their policies and due diligence processes to make that there is clear guidance on what tools are permitted, including inspecting new features in order to determine if sufficient mechanisms exist to capture those communications before they are allowed to be used for business purposes,” Cruz said.


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