Finra probes brokerages’ use of social media for prospecting

The broker-dealer self-regulator launched the exam sweep a couple of weeks after the Securities and Exchange Commission released a request for comment about the “digital engagement practices” used by investment advisers and broker-dealers.

Finra is probing how brokerages use TikTok, Twitter, Instagram, Facebook and other social media platforms to land new customers.

In an examination sweep launched this month, the Financial Industry Regulatory Authority Inc. will assess how firms utilize online “influencers” to promote themselves and how they protect customer data culled from social media activities.

“Finra 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,” states an example examination letter posted Thursday on the Finra website.

The broker-dealer self-regulator launched the exam sweep shortly after the Securities and Exchange Commission released a request for comment about the “digital engagement practices” used by investment advisers and broker-dealers.

The SEC said it is looking into ways that advisers use tools that appeal to investors’ behavioral tendencies — such as game-like features known as gamification — to shape their activities on websites, portals and mobile apps.

The Finra examination covers social media communications from Jan. 1, 2020, through a date this year that varies for each firm involved in the sweep. A sweep typically is limited to “a small number of firms,” Finra says on its website. It declined to say how many are targeted for the social media exam.

An “influencer” is any third party that provides social media content or advertising about a firm, according to Finra. The regulator also is examining referral programs in which firms pay individuals to send them new customers.

Finra is asking firms to detail how they find and pay influencers and to provide all social media communications that influencers have disseminated for them.

The broker-dealer regulator also is assessing firms’ written policies and procedures for supervising social media marketing.

“Provide any compliance policies, manuals, training materials, compliance bulletins, and any other written guidance in effect for any portion of the relevant period concerning social media communications, use of marketing affiliates and referral programs,” the example letter states.

Another part of the Finra exam assesses whether brokerages are adhering to SEC rules on protecting customer financial and personal information.

“Include a description of the firm’s supervisory system during the relevant period concerning compliance with [the SEC privacy rule] with regard to the collection of cookies obtained from customers, or individuals who provide [nonpublic personal information] but are not onboarded as customers,” the example letter states.

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