What You Need to Know
- Social media creates compliance risk for firms.
- The SEC says it is interested in learning how firms and advisors use so-called gamification tools.
- Firms need to create strategies to monitor employees effectively.
There seems to be no in-between when it comes to social media: You either love it or hate it. There is, however, very little debating the fact that its use creates risks for firms.
Perhaps the most glaring example is personified by Keith Gill, the trader who helped lead the meme stock charge under the pseudonym “Roaring Kitty.”
In helping to drive up the price of GameStop and others, he recorded hundreds of YouTube videos, tweeted and often posted on Reddit’s infamous WallStreetBets forum, all while being a financial services employee.
Last month, his former company paid the price, literally, agreeing to a $4.75 million settlement with Massachusetts regulators for failing to supervise him and, notably, for compliance failures that were systemic and “not unique to Gill.”
Social Media Marketing Issues
A less extreme but still problematic example is the headaches created by social media marketing. Truthfully, advisors and firms leveraging the likes of TikTok, Twitter, Instagram and Facebook have always kept compliance officers up at night. Yet, those worries have multiplied in recent months.
Many within the industry see the crowd of retail investors who flocked to low-cost trading platforms to buy and sell stocks during the pandemic as a ripe business opportunity. And in their mind, the key to reaching this group is social media.
The regulators have taken notice.
Recently, FINRA has said firms could be subject to social media sweeps. As part of that process, it will look into how firms leverage online influencers to promote their brands.
Meanwhile, the Securities and Exchange Commission recently requested comment related to “digital engagement practices,” saying it is interested in learning how firms and advisors use so-called gamification tools.
Therefore, firms should be prepared. Here’s what they need to know: