Social Media and Financial Services – time for a strategy?

Financial services sector head John Salmon brings you insight and analysis on what really matters in the world of financial services.

Those reading recent reports on the use of social media by financial services companies have probably been prompted to ask some important questions, such as: has anyone seen the social media policy?

Many in large organisations will assume that someone somewhere has decided on a clear strategy as to which, how often and to what extent employees should be utilising new communication channels and engaging with customers, stakeholders and other relevant individuals on our behalf. Sadly, this is not always the case.

Reports on the extent to which banks and other financial services businesses engage with social media this week make this clear.

A KPMG report noted that many businesses lack sufficient controls to prevent staff breaching client and company confidentiality through postings they make online, while Banking Technology Magazine highlighted Pearlfinder research indicating that only 22% of UK financial institutions "intend to invest in social media". In my view this figure is startlingly low.

And in its special report on connected business last week, the FT made similar suggestions, stating that lenders have failed to capitalise on social media. It was noted that while there is a large amount of discussion on Twitter about the biggest banks, the discussion is overwhelmingly a record of expression of customer dissatisfaction.  

So why are financial institutions proving to be slow in responding to the forming and cementing of negative social media impressions on Twitter, Facebook and LinkedIn on a daily basis?

It seems that regulatory fears are likely the key reason for caution.

Any business thinking about greater social media engagement will first turn its attention to advertising rules and in this regard it is prudent to focus on the content rather than the medium used. The Advertising Standards Authority's (ASA) CAP Code's guidance now applies to social media communications and should be consulted, as should the Financial Services Authority's (FSA) financial promotions guidelines. The high level principle, of course, is that any marketing communication must be ‘fair, clear and not misleading’.  

Notably, the ASA has adjudicated on the use of hashtags in tweets and noted that the overall impression of a series of tweets forming part of an advertising campaign must reveal its nature. And the FSA last month singled out Facebook, reminding regulated businesses that it is "not exempt from requirements to describe risk and disclose other key information" and that "being one click away from the information does not necessarily make [a message] compliant."

A good social media policy will address these issues specifically.

There is also a need to ensure that rules are put in place so that individuals outside of the UK are not targeted, or if it is intended that they will be, that consideration has been given to any specific social media rules existing in the jurisdictions where those customers or potential customers may be located.

But social media engagement pulls in more than simply advertising compliance concerns.

Financial institutions must also give attention to data protection laws and the purposes for which consent has been obtained. At the serious offence end, a tweet or a Facebook post could breach the Communications Act's prohibition against "grossly offensive" communications.    

And as Big Data opportunities increase, financial institutions wanting to capitalise on the streams of data flowing freely from leading new media platforms must pay regard to the general requirement for regulated businesses to take reasonable care in organising and controlling their affairs responsibly and effectively by putting in place adequate risk management systems.

The FSA has said: "our approach to regulation is changing and we will become more pre-emptive".

As it prepares to hand over the social media compliance baton to the Financial Conduct Authority (FCA), it has made clear that "...proposed legislation will give the FCA a new power to ban misleading promotions" and that the new body will "be ready to take faster and more effective action from the first day [it] gets these powers".