12.21.2012
By Terry Flanagan

Beefed Up Compliance Key to Adopting a Successful Social Media Strategy

An errant Tweet or a misguided Facebook post may be all it takes to land a financial services firm in hot water with the regulators.

But many are beginning to see the vast potential of social media, despite having to tread carefully in the space as one wrong posting could negatively affect a trade or a client relationship.

With these more onerous rules to obey—compared to other business sectors—financial institutions have, in the past, been wary of even joining sites such as Twitter and Facebook, but this could be changing.

For instance, investment manager Fidelity Investments has recently launched a new risk and compliance hub to make it easier for broker-dealer clients of its clearing arm National Financial, through its Streetscape workstation, to engage with customers on social networking sites such as Facebook, LinkedIn and Twitter.

“Broker-dealers face a growing array of challenges in managing the evolving compliance and risk landscape,” said Richard N. Hart III, head of platform technology for National Financial.

“Simply keeping pace with required reporting and monitoring can make it difficult for firms to focus on offering compliance around new communications strategies like social media.

“The new risk and compliance hub enhancement to the Streetscape workstation may allow broker-dealers to more confidently operate in today’s risk and compliance environment while also taking advantage of new marketing channels.”

Leveraging social media is seen as particularly important for engaging with the next generation of investors.

But surveillance is what will keep a firm’s reputation in tact.

“Will the sell side and asset managers start using Twitter as a means to keep their clients up to date and provide news updates?” said Magnus Almqvist, senior product specialist at trading and technology firm SunGard’s capital markets business, in his latest blog.

“If so, how can they prove that they can keep these fast-moving and far-reaching information media under control, detect and act on any potential information leakage? These changes are already in full swing as we head into 2013. With this follows the need for the appropriate systems and checks to be in place coupled with the ability to show audit trails and actions taken on any potential irregularities.”

And that is not to mention the financial fraud that could be occurring on sites such as Twitter and Facebook. FBI agents are known to be scouring these social networking sites looking for instances of this.

“There is an increased focus on personal dealing and diligent pre-approval processes,” said Almqvist. “Is a firm’s staff acting on firm advice ahead of them being public, or ahead of news and client activity? Does the firm have the tools and means to monitor staff dealing and are they sure they are disclosing information diligently and in a timely manner?

“It all comes together at the compliance function within the firm. Increasingly, demonstrating a well-functioning compliance function is an assurance brokers and asset managers are expected to give to their customers, who are becoming increasing advanced and ask very pertinent and probing questions before signing over their business.”

Firms entering this social media universe are being warned to up their game if they want to keep the regulators and authorities at bay.

“Perhaps a slight slip of the tongue on a Facebook post can be viewed as harmless in isolation,” said Almqvist. “But if a firm’s system helps the organization see the combined pattern of that post, a client order and a staff taking a position, they can start to see a pattern.

“That level of integration and seamless compliance and risk management will be the expected norm in the near future, and actors will need to be prepared for this reality in 2013.”

SunGard, too, offers social media surveillance, through its Protegent solution, to help firms archive, monitor, report and filter content posted on sites such as Facebook, LinkedIn and Twitter.

“Advisors need to be able to reach their clients wherever they are, including on social networks and the web,” said Steve Sabin, chief operating officer of SunGard’s Protegent business unit. “SunGard’s Protegent provides tools to help broker-dealers participate in those sites without creating regulatory and reputational risks.”

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