So it may seem counter-intuitive for the industry to call for enhanced regulation and guidance. But that is exactly what is needed to respond to the burgeoning growth of social media in the banking industry.
Unfortunately, recent experience suggests that these regulations may be some time coming. In the US, the FDA has been promising to release their position on the use of social media in the Pharmaceutical industry for some time, but so far have only announced a series of six month postponements while they wrangle with this complex topic.
For their part, the FCC has recently asked some members of the investment industry to submit their social media policies to prepare for an industry review, but are still a far way off from delivering their own guidance on social media.
While this lack of clarity will continue to cause some uncertainty in the market, it does not excuse a 'wait and see' approach to social media. Banks must forge ahead regardless; there is a far greater risk in doing nothing at all.
So, for the time being at least, banks will need to look to existing regulations to interpret how the exchange and retention of information across social media should be governed. This will require a stringent review of regulatory guidelines to identify any areas that touch on the issue of representation, and a re-examination of policies to ensure they can stand up to the demands of social media.
Banking executives will also want to take a closer look at how marketing activities – in particular – are adhering to compliance requirements. The simple truth is that most social media conversations between banks and their customers are now being driven and maintained by marketing departments and the agencies with which they may contract these services, yet most of these marketing departments have not properly updated their compliance frameworks to reflect the very different characteristics of social media (fast response time, total transparency, data discoverability, varied audiences, etc).
Articulating the rules and training the workforce on social media compliance will also be critical, particularly where employee's social profiles are linked to the bank. For example, by retweeting or liking an article on investment opportunities in LinkedIn or Facebook, employees may be seen as 'providing investment advice' by regulators and therefore be subject to compliance review.
Clearly, social media will demand banks to take a new perspective on governance. But it may not require wholesale change; in many ways, current governance frameworks largely apply. Individuals will still need to be verified as customers for advice to be provided; marketers will still need to comply with advertising guidelines for financial services; data will still need to be appropriately safeguarded.
The real problem facing banks is time. Given the rapid pace of change already underway in social channels, banks will need to move quickly to develop appropriate frameworks that not only comply with existing regulations, but also provide a level of flexibility to reflect the constantly evolving nature of social media.
For any bank that is already participating in social media, there is no time to waste. The time to revisit your compliance framework is now.
By John Hair, Director, Risk Consulting and Digital Services, KPMG LLP (US)
|| John's article resonates the world over. Legislative and supervisory bodies on both an EU and a national level have begun to actively look at regulations related to the use of social media by the financial services industry and we can expect there to be some coherence with regulatory change underway across the Atlantic. And while it remains to be seen what form the new regulations will take, it seems clear that banks will need to rethink both their compliance management processes and their approach to social media in order to steer clear of the regulators. Equally important, banks must not forget data protection issues and liability risks under statutory or case law, which also need to be monitored and properly managed.|
|| The SEC has already been quite active in this area and have recently issued a number of alerts and actions related to social media. Additionally, there have been many other risk alerts and perspectives issued by various Compliance, Regulatory and Advocacy agencies. There is clearly an approaching tipping point that will force banks to take a more measured approach to their Social Media interactions. Banks should be anticipating future regulatory movement and start developing strategies to organize activities across the silos that exist today in marketing, corporate affairs, operations and the various lines of business.|
||Vincent Piron Compliance departments and officers will have to find a way to stay on top of the ever-changing world of social media in order to ensure that their banks remain compliant. New networks are popping up almost weekly, and while the natural inclination of marketers is to jump on top of new and fertile ground, compliance officers will need to carefully balance the need to enforce regulation while – at the same time – allowing the bank to stay competitive in the marketplace.|