In July, Robert Cook, President, and CEO of FINRA (Financial Industry Regulatory Authority), warned member firms that FIRNA would soon begin three targeted sweeps to address areas of concern:
- Options account opening
- Special purpose acquisition companies (SPACs)
- Supervision of influencers in the financial services industry (or “Finfluencers”).
According to Cook, FINRA has “been interested in options account opening compliance; that will be one sweep that we intend to do — [focusing on] the due diligence that’s being conducted in that space.” FINRA also continues to be interested in the SPAC space and the conflicts of interest that might be there.
New on the menu is Cook’s focus on firms increasingly engaging social media influencers to promote member firms and their services.
Influencer marketing is on the rise across industries, with 9 out of 10 companies across various industries using some form of influencer marketing. With the advent of the modernized marketing rule, firms have additional leeway to use testimonial advertising, but FINRA is growing increasingly concerned about these “finfluencers” and how firms supervise activities and communications related to paid social media advertisements.
As social media and global crises continue to change the landscape of the financial services industry, member firms must ensure that they keep up with the pace of innovation and the regulatory environment surrounding that innovation. As Cook said, “… innovation is great, but compliance with the rules is not optional, and it can’t be sacrificed for the sake of innovation,” he said. “And I think that’s where you’ll continue to see us.”
In the best-case scenario, innovation in the marketplace aligns with the innovation firms use to manage their regulatory efforts. For example, finfluencer partnerships can include a wide range of communications across different social media platforms. Tracking approved messaging and the time/place where it’s used can leave a diligent trail for regulators, showing them you’re focused on doing the right and compliant thing in your social media/influencer marketing.
In addition to discussing upcoming sweeps, Cook noted that last year’s FINRA sweep “focused on whether the zero-commission model affects firm satisfaction of their best execution obligations.” Because the industry has experienced a prolonged zero interest rate environment combined with some firms moving to zero commissions, FINRA is assessing implications for “investors’ experience” associated with zero commissions and how that may impact FINRA rules.
FINRA is also in talks with the SEC to determine whether to extend their temporary supplementary material under Rule 3110, which allowed member firms to conduct their branch inspections remotely due to the complications brought about by COVID-19. This relief is set to expire on December 31, 2021.
However, considering the course of the pandemic, Cook said that FINRA is “actively engaged in discussions with SEC staff to explore extending the duration of this relief into 2022.” Firms who wish to continue the remote inspection option are also advised to have well-crafted written policies and procedures that underscore their efforts to make branches ready/eligible for remote inspection.
About Red Oak Compliance Solutions
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