When asked if they partner with social media influencers, 16% of session attendees said they do.

Given FINRA’s current targeted exam on social media influencers (or finfluencers), many attendees seemed interested to hear the regulator’s thoughts on best practices when dealing with influencers. Combine that with the SEC’s recent modernized Marketing Rule and you have one hot topic.

Firms should be aware that regulators will consider this type of content “entangled” with the firm (see FINRA Regulatory Notice 10-06 and 11-39), meaning it’s treated as communication with the public.

It’s recommended to follow these best practices when partnering with social media influencers:

• When engaging with an influencer, start with a detailed questionnaire to detect any conflicts of interest or disqualification events
• Set expectations during the contract process to set appropriate parameters and monitoring of the influencer’s activities
• Ensure disclosures were correct and complete, especially with complex products, including any risk, restrictions, or compensation (“#PAID” disclosure was suggested)
• Ensure the content standards under Rule 2210 are satisfied
• Include the member’s name on the advertisement as well as clearly identifying which entity offers which services, as applicable
• Enhance supervision in the area and increase the training used with regards to influencers

There has been no shortage of new mobile applications and other digital platforms developed to engage with clients, bringing more access to the market. But regulators have been concerned that digital engagement practices prompt certain behaviors and that proper investor protections are not being applied.

FINRA noted that while these engagement practices are not inherently bad, there is a potential for conflicts of interest. Among issues noted were more frequent trading and prompting risky behaviors among users.

To help ensure that these features comply with FINRA’s rules, FINRA suggested firms include compliance in the development of these practices before they are integrated, as well as constant monitoring to ensure they are working correctly. Firms will need to evaluate how recordkeeping and supervision of digital engagement practices may differ from more traditional methods.

With the SEC expected to release proposed rules for Digital Engagement Practices for Broker-Dealers before the end of the year and FINRA conducting targeted exams of the use of mobile applications, I would expect this to remain at the forefront of regulatory compliance.

Whether or not your firm uses virtual communication tools or social media, the resounding message throughout this year’s conference was that recordkeeping is paramount to the firm’s ability to comply with regulations.