Financial Institutions Alert

Last week FINRA announced a new inquiry into firms’ use of social media and “influencers” to attract clients.  After the well-publicized market volatility in GameStop, which was bolstered by an online influencer known as “Roaring Kitty” – a former financial advisor who faces lawsuits alleging the artificial inflation of GameStop’s price for his own benefit – it is clear that a closer look at the influence of social media influencers is warranted.   In its new exam letter, FINRA stated it is conducting a review of firm practices related to the acquisition of customers through social media channels and how firms manage their obligations as to the information they collect. 

FINRA casts a broad net and defines “social media” as any application or website that allows a user to share content or otherwise network.  “Social Media Influencers,” according to FINRA, are any third parties with whom the firm contracts or compensates to provide Social Media Communications. FINRA defines Social Media Communications as any communication with the public through social media, “including the provision of any content or advertisement about or on behalf of the firm,” made pursuant to an arrangement with the third party Influencer.

FINRA’s Exam Letter seeks information regarding:

Social Media Influencers:

Whether firms or their affiliates contract with individuals to provide Social Media Communications.  FINRA would like to know how those individuals are found and asks for copies of engagement letters or contracts that provide for compensation of those individuals.   FINRA also seeks copies of the Social Media Communications themselves, as well as any firm social media postings or other communications seeking to recruit Social Media Influencers.

Referral Programs:

Whether firms are offering referral programs for which individuals receive bonuses or other incentives for referring new customers to open accounts.  FINRA seeks copies of social media posts and other communications used by the firm to recruit individuals to the referral programs.

General Information Related to Social Media Influencers & Referral Programs:

FINRA seeks copies of the firm’s written supervisory procedures in effect relating to Influencers and the referral programs and how the firm was monitoring those programs, as well as any compliance policies or bulletins, training manuals or other written guidance.   FINRA is interested in whether and how firms undertake training of Social Media Influencers on those policies.

Items related to Regulation S-P and Usage Information

Finally, FINRA seeks firms’ written supervisory procedures regarding compliance with the SEC’s Regulation S-P, in particular regarding the collection of “cookies,” or the data generated by a website about a user and saved, and how the firms are treating that data as well as the policies in place to protect the privacy interests of those individuals.  FINRA is also interested in how and what kind of information firms share with third parties.

FINRA’s September 2021 Exam Letter can be found here.

Questions can be submitted to authors Regina Pepe Martorana and Kathryn Burfitt Rockwood.

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