Social Media Push Poses Legal Challenge to Banks
Quittner, Jeremy, American Banker
Byline: Jeremy Quittner
As banks search for their place in the fast-evolving world of social media, they are increasingly looking to technology to help them cope with a tangle of potential regulatory and legal challenges.
Social media communication by its nature tends to occur in real time, so financial institutions have no time to vet their Tweets and Facebook posts with the usual retinue of lawyers and media handlers.
Sensing opportunity, several tech firms have jumped into the market with what they claim are solutions to the compliance and regulatory problems of dabbling in social media.
"Because financial services are so relationship- and referral-driven, social media is perfect," says Clara Shih, co-founder of Hearsay Social Inc. of San Francisco. "But the financial services industry is also one of the most highly regulated."
The Securities and Exchange Commission and the Financial Industry Regulatory Authority regulate the electronic communications of banks and other financial institutions. In January, Finra issued specific guidance to broker-dealers and securities firms about tracking and archiving social media correspondence, as well as many other issues pertaining to social media interactions.
That affects many of the largest banks, which have securities trading arms. But it leaves communications from other departments, such as for marketing, on uncharted ground.
"Social media is rewriting the rules and [increasing the] speed with which banks have to respond," says Mark Schwanhausser, a senior analyst for Javelin Strategy and Research.
Citigroup Inc. has been working extensively with at least three companies to support its social media strategy. They include CoTweet Inc., Hearsay Social and Socialware Inc.
Those partners "are totally focused on the financial services category and helping companies work through ... regulatory issues so you can be out there and engaging in the appropriate way," Robert O'Leary, Citi's managing director of global advertising, told the Advertising Club in New York earlier this month.
Citigroup declined to make an executive available for this story. Frank Eliason, the company's senior vice president of social media, told American Banker in January that the bank uses CoTweet to manage workflow over Twitter. At that time Citigroup had trained about 100 customer service representatives to track and respond on Twitter to customer queries and complaints.
Hearsay Social, which is a partner of Citigroup, works with more than a dozen financial services companies. It received $3 million in venture capital from Sequoia Capital of Menlo Park, Calif., in February.
In addition to social media tracking and archiving, Hearsay Social helps banks manage workflow that might be initiated by customer service requests received through Facebook or Twitter. …