Social media continues to be one of the most powerful marketing channels used by companies today and shows no signs of slowing anytime soon. In fact, U.S. advertisers are estimated to increase social network ad spending by over 20% in 2020. While social media offers the potential to reach billions of users at minimal cost, it also presents a great risk for financial institutions.
Part 1 of our blog series focuses on the regulations that govern social media use by all companies, including financial institutions.
What Are The Regulations Governing Social Media Compliance?
There are several regulations that cover social media compliance, specifically around content, disclosures, and reviews:
Truth in Advertising
The Truth in Advertising law's purpose is to ensure that consumers receive accurate and non-misleading information via advertisements. Under Truth In Advertising, the FTC requires that:
- Advertisements must be truthful and not deceptive
- Advertisements with specific claims must be substantiated with evidence
- Advertisements cannot be unfair or deceptive
Section 5 of the FTC Act prohibits unfair, deceptive or abusive acts and practices (UDAAP). In general, any company using social media should avoid posts that are deceptive or misleading about their product or company, just as they would on any other marketing communication channel.
The FTC Act also applies to any influencers who are endorsing a product on behalf of a sponsoring company. This means that any material connections that would affect how consumers would evaluate the endorsement should be disclosed upfront. Additionally, influencers should not talk about an experience with a product if they haven't used it and should not make a claim about a product that requires proof they can’t provide.
Consumer Review Fairness Act
The FTC's Consumer Review Fairness Act protects consumers' ability to share their honest opinions about a business's products, services, or conduct in any forum – including social media. Under this act, companies cannot include contract provisions with consumers that:
- Prohibit negative reviews
- Impose a penalty or fee to a person who posts a review
- Require individuals to transfer intellectual property rights in reviews
FINRA's rule 2210 outlines the requirements for communicating with the public, which applies to social media as well. In simplest terms, FINRA requires that member organizers:
- Keep a record of communications from at least the past 3 years
- Supervision of business-related content associated persons are communicating on social media (including recommendations)
- Reviewal and record-keeping of third-party social media posts
- Organizations do not link out to a third-party site with false or misleading information
- Set procedures to supervise interactive electronic communications that recommend specific products
- Fair and balanced communications
Check out part 2 of this blog series that goes into more detail on how Financial Institutions can stay compliant with industry-specific regulations on social media. For more content, subscribe to our blog here.