FINRA and SEC Increase Focus on Social Media Finfluencers

The Case

Both FINRA and the SEC have expressed concerns about using social media influencers ("finfluencers") in the financial services industry, particularly regarding compliance with advertising rules, supervision, and investor protection. FINRA has conducted a sweep of firms using finfluencers, issued guidance, and brought enforcement actions for violations involving misleading or exaggerated claims and inadequate supervision. 

The SEC has also taken enforcement action against an investment adviser for failing to disclose a finfluencer's involvement in an ETF launch and has issued investor alerts warning about the risks of relying on investment advice from social media. These actions signal increased regulatory scrutiny of finfluencer marketing practices.

Regulatory Implications

The increased regulatory focus on social media influencers, or “finfluencers,” highlights several compliance risks and obligations for firms:

Supervision Requirements:

• FINRA emphasizes supervision by broker-dealers over social media influencer communications, ensuring compliance with FINRA Rules 2210 and 2010.

• Firms must maintain reasonable oversight systems to review and retain influencer communications.

Privacy Concerns:

• Regulation S-P requires firms to provide accurate privacy notices and prevent unauthorized sharing of nonpublic customer information.

• FINRA’s enforcement actions underscore risks associated with sharing customer data, such as Social Security numbers or email addresses, with unaffiliated third parties.

Advertising Standards:

• Both FINRA and the SEC require that influencer content be fair, balanced, and non-misleading.

• As seen in recent cases, exaggerated or promissory statements can cause enforcement actions.

Transparency Obligations:

• SEC enforcement demonstrates the importance of disclosing material relationships with influencers, particularly in cases where influencer activities affect investor decision-making.

Practical Guidance for Firms

To mitigate regulatory risks and align with FINRA and SEC expectations, firms should focus on the following:

Strengthen Supervisory Systems:

• Implement clear policies for approving and monitoring influencer content.

• Establish systems to retain communications for regulatory review.

Enhance Privacy Protections:

• Review and update privacy notices to follow Regulation S-P requirements.

• Ensure nonpublic customer information is not improperly shared, especially with third parties for marketing purposes.

Educate Influencers:

• Provide training to finfluencers on advertising rules and prohibited practices, such as exaggerated claims or promissory language.

• Require influencers to disclose any financial incentives or material relationships.

Improve Disclosure Practices:

• Disclose influencer involvement in products or services clearly and prominently.

• Ensure trustees and other stakeholders are informed of material relationships that could affect decision-making.

InnReg supports firms in managing the risks of social media marketing by offering services such as policy development and reviews of supervisory systems. Our expertise helps firms strike a balance between leveraging innovative marketing strategies and maintaining compliance with FINRA rules and SEC rules.