News Update: FINRA to Sweep BDs on Use of Social Media Influencers to Refer Clients

September 2021

Overview & Summary

FINRA announced that it is conducting a review of firm practices related to the acquisition of customers through social media channels and how firms manage their obligations related to information collected from those customers and other individuals that may provide data to firms. Sweep effort review periods will begin (unless otherwise noted) starting January 1, 2020 and will likely carry through the date of examination (or most recent quarter end). Note that this sweep effort was announced following a request for comment by the SEC regarding “digital engagement practices” of advisers and broker dealers. View this request in full, here.

Our Take

As always, CRC reminds firms that the best compliance program is a proactive one. As such, we suggest that firms (whether registered with FINRA as a BD or with the SEC as an RIA) who are utilizing social media, as well as social media influencers, often known as finfluencers, review their current policies and procedures to ensure that recordkeeping, data tracking and protection, and disclosure requirements relative to investments, investment advice, and solicitation agreements are all addressed properly. In addition, CRC recommends that key personnel involved in such processes are well trained, and that such training is specific and documented. 

Some Key Takeaways:

• FINRA is instituting this initial sweep effort, but investment advisory firms should prepare themselves as well for a similar initiative from the SEC. 
• FINRA appears to be focused on determining whether firms have adequate written policies and procedures in place to ensure that obligations are met where finfluencers and social media are used to refer clients, as well as whether procedures are followed.
• The SEC’s request for comment also notes “gamification” as an area of interest with respect to the collection of and engagement with client and prospect data. 
• The full FINRA sweep exam scope is available here.

Opportunities for CRC to Assist Your Firm (list not exhaustive):

• CRC can proactively conduct a review of your current compliance program and digital engagement activities to identify opportunities to potentially implement enhancements in preparation for sweep examinations.
• CRC is available to assist with sweep exam responses.
• CRC is available for outsourced support with respect to social media marketing in general, as well as where the use of finfluencers is applicable. 
• CRC can produce written social media marketing/ influencer referral policies and procedures designed to comply with relevant regulatory implications. 
• CRC can provide best practices to firms looking to expand into this area or to ensure current program compliance. 
• CRC can perform a program analysis to ensure compliance with Reg SP relative to social media referral programs. 

Please contact Mitch Avnet for more information.

Mitch Avnet at mavnet@compliance-risk.com  or (646) 346-2468