Jun. 05, 2012
Social Media is finally making headway in the banking industry. As MyPrivateBanking’s recent report on Social Media in banking makes clear; a select group of global banks are storming ahead with their social media marketing strategies. Another large group contains banks that are at least putting the basic social media structures in place. A third group – called the social media laggards – is the ones that, so far, are failing to develop any consistent social media strategy.
One of the areas that is giving many banks around the world a headache in social media are regulatory and compliance issues. Among them we pinpointed that the following issues as especially critical:
- Existence or non-existence of an overall social media policy that guides bank employees and advisors about what to do and especially what NOT to do when using social networks. Even if a bank choses to prohibit all social media activities this must be clarified in a specific policy.
- Record keeping. In many jurisdictions there are very clear requirements for communication (especially written communication) with clients to be kept on record. Banks have to think about and clarify which messages and conversations on social media are required to be kept on record and how this should be implemented.
- Privacy issues. Social media enable businesses (and other organizations) to collect, store, use and potentially even to sell personal information of their users and/or clients. Depending on the jurisdiction, some of this data is considered sensitive and should not be collected or requires the specific approval of the individual to do
- Testimonials. In some countries (especially the United States) how investment advisors use the testimonials of clients for marketing purposes is heavily regulated. Whether, for instance, Facebook-“Likes” or recommendations on LinkedIn constitute testimonials is an issue still requiring clarification.
- Advertising. In many countries there is regulation how banks and other financial services companies can advertise. Communication on social media channels may or may not fall under these rules.
- Investment advice. In some jurisdictions there are strict rules as to whom and in what manner financial services companies can give investment advice. Again, the United States is probably most heavily regulated in this area. Communication over social media can be considered investment advice in various cases. For instance, re-tweeting a link to an article about a certain stock may already be construed as investment advice.
Broadening the focus somewhat, there are other important social media issues that touch on the legal position of banks; for example, the matter of intellectual property rights to social media content.
Banks whose business extends across many jurisdictions especially are facing multiple regulatory issues. However, we think that it would be the wrong response to stop all social media activities until every last issue has been resolved. Even regulators remain uncertain or contradictory on social media regulation. Reuters reports that regulators in the US on the federal or state level are still at the stage of probing individual social media policies and polling financial services companies.
We think that there are three critical steps every financial services firm can take today to make sure the level of compliance with regard to social media is as good as possible:
- Develop a specific social media policy that states very clearly which employees can communicate in the name of the firm, specifies the resources they have to use and makes clear what social media communicating should or should not cover.
- Go through existing regulation for every jurisdiction and make sure everybody understand how these rules –made for traditional media –apply to the new social media. One example would be how to treat Facebook-“Likes”; another how re-tweeting should be handled.
- Make sure there are dedicated resources in each country in which the bank provides services, tasked with tracking regulatory issues relating to social media and recommending guidelines where necessary. These resources might be in-house or could be consultants or law firms that have specific competencies in social media law.
Both the full benefits that banks can bring to customers through wise use of social media and all the necessary boundaries have yet to be established. MyPrivateBanking will be looking at new developments on both as they unfold.