New Social Media Guidance for Financial Institutions (Which Might Include You)

by Spilman Thomas & Battle, PLLC

The latest extension of the social media puzzle involves financial institutions. But, banks are not the only financial institutions governed by the alphabet soup of regulatory organizations addressing financial services (the OCC, Federal Reserve, FDIC, CFPB, NCUA and State Liaison Committee that represents state regulators). Nonbank entities are also supervised by the Consumer Finance Protection Board (“CFPB”), such as some insurance and real estate investment entities.
The members of the Federal Financial Institutions Examination Council (“FFIEC”), have published final supervisory guidance titled “Social Media: Consumer Compliance Risk Management Guidance.” The Guidance clarifies the specific actions regulated entities must take to ensure their use of social media on behalf of the company does not mislead consumers or violate regulations.
As a result, human resources professionals involved in these organizations need to review and, if necessary, revise their policies related to social media usage in order to reflect these new standards. Just bear in mind, the rules within the Guidance are in addition to the concerns raised by the National Labor Relations Board (“NLRB”).
As the new Guidance demonstrates, financial institutions must be aware that examiners will look at compliance efforts and policies related to their use of social media. As more institutions use social media, such as Facebook, LinkedIn, Twitter and other services to engage customers, the FFIEC social media guidelines must be reviewed and integrated in the organization’s risk management program. The new Guidance will be used as a supervisory aid by the OCC, Federal Reserve, FDIC, NCUA and CFPB. The institutions they supervise are “expected to use the Guidance in their efforts to ensure that their policies and procedures provide oversight and controls commensurate with the risks posed by their involvement with social media.”
The Guidance defines social media as “a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video.” Social media can include “micro-blogging sites” such as Facebook, GooglePlus, MySpace and Twitter; forums and customer review websites such as Yelp; photograph and video sites such as Flickr and YouTube; and games. The defining characteristic of the social media, according to the Guidance, is that these communications are more interactive. The Guidance acknowledges supervised institutions may use social media in a variety of ways affecting the “risk profile” of the financial institution.
With respect to expectations of regulators regarding specific attributes of a compliance risk management program, many variables influence the contents appropriate for each institution. The program should allow the financial institution to “identify, measure, monitor, and control the risks related to social media,” and the size and complexity of the program “should be commensurate with the breadth of the financial institution’s involvement in this medium.” The Guidance provides examples that institutions relying heavily on social media to attract and acquire new customers will require a more detailed risk management program.
Regarding who should be tasked with developing this program, the Guidance explains that financial institutions should include input from compliance, technology, information security, legal, human resources and marketing constituents. Additionally, the Guidance states that institutions should provide training for their employees’ official use of social media.
The FFIEC has provided the following general outline of the concepts to include in a risk management program:

•  A governance structure with clear roles and responsibilities, including board of directors input on how social media contributes to the strategic goals of the institution and defining controls and ongoing assessment of risk in social media activities.
•  Policies and procedures regarding the use and monitoring of social media and compliance with all applicable consumer protection laws and regulations. The Guidance also explains that policies should incorporate methodologies to address risks from online postings, edits, replies and retention.
•  A risk management process for selecting and managing third-party relationships in connection with social media.
•  Employee training incorporating the institution’s policies and procedures for official, work-related use of social media. The training should also address other uses of social media, including defining impermissible activities.
•  An oversight process for monitoring information posted to proprietary social media sites administered by the financial institution or a contracted third party.
•  Audit and compliance functions to ensure ongoing compliance with internal policies and applicable law.
•  Parameters for providing appropriate reporting to the financial institution’s board of directors or senior management that enables periodic evaluation of the effectiveness of the social media.
More than half of the Guidance is dedicated to specific compliance and legal risks presented by social media. This information discusses other laws and regulations that may be relevant to social media activities, such as the Fair Debt Collection Practices Act, Truth in Lending Act, Real Estate Settlement Procedures Act and Community Reinvestment Act, among a host of others.
For financial institutions attempting to develop risk management programs, including provisions that touch on all of these issues is challenging - to say the least. Because many financial institutions are working to broaden their customer base and communicate via social media, these laws and regulations must be considered.
Financial institutions should consult the Guidance to identify the specific risks in each of these statutes, as well as other concepts that should be part of their risk management programs.
Several teaching points are located within the new Guidance.

(1)   Organizations need to be cautious about what employees and third-parties are posting related to their financial products and offerings through a risk management program. This program should monitor, investigate and remediate any confusion about who is authorized to speak for the financial institution and what is being said.

(2)   Within use of social media, financial institutions need to take into account regulators’ increased focus on disparate impact and issues associated with favoring certain types of consumers in lending transactions. For example, interest rates touted on social media forums as being offered to one section of a city may be viewed as discriminatory, even if they are inadvertently targeted to appeal to home owners in that area at the exclusion of protected categories of individuals.

(3)   Regardless of industry, companies should reexamine social media policies to identify whether the proposals and ideas suggested by the new Guidance could be of benefit and warrant an update to existing social media policies

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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