The Future of Social Media Use by Financial Institutions
Westlaw JournalSherry-Maria Safchuk
Social media is revolutionizing financial institutions’ relations with consumers, but the laws governing these interactions are not keeping up. Regulations created before the social media era have not been updated to address newly arising issues and concerns. As a first step, the Federal Financial Institutions Examination Council released “Social Media: Consumer Compliance Risk Management Guidance” in January, with final recommendations that may be released before the end of the year.
Undoubtedly, both federal and state officials will eventually regulate social media in some manner, but uncertainty remains about their possible approaches. Moreover, different sectors of the economy may become subject to different rules, and the various supervisory agencies may take different tacks. For example, financial regulators, still reeling after years of legislative and regulatory upheaval in the post-Dodd–Frank era, may try to avoid the rulemaking process and create policy through enforcement actions. The Securities and Exchange Commission took this approach when it recently stated it would allow public companies to use social media to disseminate material information — simultaneously avoiding the formal rulemaking process and establishing permitted uses of social media.
Carl Pry, senior director of Treliant Risk Advisors, an advisory firm that addresses the regulatory, strategic and operational issues confronting financial services firms, concurs. He says that for the near future, enforcement actions or threatened enforcement, as opposed to regulations, will determine what does and does not pass muster when financial institutions use social media.
Originally published in Westlaw Journal of Bank & Lender Liability, reprinted with permission.