In the past few weeks there have been attempts made to tackle two new developments in the world of financial regulation, and ones which, it seems, many regulators and financial services firms still do not have a firm grasp of; virtual (or alternative) currencies, in particular Bitcoin, and social media. As has been so common in the historical cycles of regulation, everybody can see the importance of these areas but nobody seems keen to take that first step into producing coherent regulation, guidelines or licensing. It is fraught with difficulties, often produced with what appears to be a lack of expertise and going against the desires of the industry, who want as much freedom as possible (but also light punishment when it goes wrong).
A few weeks ago the Financial Conduct Authority, one of the shiny new regulatory bodies to emerge from the ashes of the UK’s Financial Services Authority, issued a Guidance Consultation on Social Media and Customer Communications, a precursor to a new regulatory approach designed to tighten up rules around what is permissible when using social media and interacting with customers, particularly around promotions. Whilst there has been the inevitable grumblings about this, not least due to a perceived, and likely correct, view that it has been left too long, it is also generally accepted that this update is needed and, with useful industry feedback, could be the start of a proactive view on the development of social media in financial promotion.
One of the advantages any regulator has in this instance is that they get to shape ideas which will be picked up and used not only by the industry, but by other regulatory bodies. Social media is not going to go away, and whilst there have been legal cases and taxing issues about what is and is not acceptable, this is an initial foray into the concept of placing fixed boundaries on what is permissible for a firm to be doing with their online presence.
A parallel can be drawn here to the New York Department of Financial Services and their approach to licencing Bitcoin. The DFS came to the fore in recent years with some hefty fines and an approach to track down and punish malpractice by its head, Ben Lawsky. Taking on the challenge of producing licencing requirements for Bitcoin is a new step for the DFS, and one that has met with anger from the virtual currency community, although this comes with an undertone of inevitability. Talking to a compliance practitioner in this area recently, it seemed clear that the DFS are taking a bold, but ultimately necessary (and welcome) step towards helping regulate this market. It is also apparent that they have done their homework and are ready and willing to work with the industry in collaboration, rather than opposition.
A beneficial element which has helped the cause of the FCA has come from an outside source, in the form of a Social Media Charter put together to help firms align with a core set of values and principles on how to use social media. This has been in the works for some time, but is an important milestone for financial services firms to use as a way of showing their commitment to promoting ethical practice, strong governance principles and a desire to rebuild their trust with stakeholders and the general public.
The feedback to the Social Media Charter has been impressively positive, with firms using this as a chance to demonstrate their continued progress on this front, and their changing attitudes towards doing right by the community. Of course, the cynics out there will claim these firms are merely jumping on the bandwagon of a good thing, but organisations that have signed up to similar initiatives in the past, such as TRACE International, have successfully been able to improve their reputation and use the tools available to them for embedding a more appropriate culture, training and alerting staff to their own individual responsibilities.
The starting point of any new regulatory change entails, to some extent, jumping in to the deep end. Both the FCA and DFS have done just that, taking a leap which others will invariably follow. The bonus for the FCA is the industry need, commitment, and outside help from the Social Media Charter to provide the push needed for the guidance to be taken seriously, and implemented thoroughly. It is still early days on both these fronts, and much remains to be seen once they move towards fuller acceptance. With any luck the industry will step in to help, and not hinder, these initiatives.
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