I’ve attended many FINRA Advertising conferences over the years, and candidly speaking, this was one to remember for so many reasons. The event is always first class, and it’s always amazing to reconnect with so many wonderful industry experts and colleagues, but this conference was particularly memorable due to the in-depth discussion and guidance FINRA offered on two critical topics: off-channel communications and financial influencers, also known as “finfluencers.”
Off-Channel Communications: Supervision and Compliance Challenges
FINRA’s Amy Sochard, Vice President of Advertising Regulation, addressed the regulator’s explosive growth in the use of off-channel communications, leading to a surge in fines and exams. This issue has become a significant focus in the securities industry, particularly the unauthorized use of messaging apps and text messages to conduct firm business in ways that firms cannot capture or supervise.
Sochard emphasized, “It’s very timely [that we’re talking about off-channel communications]. The commission just announced another $88 million in fines just this week.”
Given the discussions at the conference, it is clear that off-channel communications should be at the top of the priority list for firms. Establishing processes and procedures to both discover and archive these communications is essential as they continue to grow in prevalence. Firms need to stay vigilant in monitoring these channels to ensure compliance with regulatory expectations.
The Rise of Finfluencers: Regulatory Scrutiny Intensifies
Another prominent topic was the increasing role of finfluencers in the industry. The opening session’s panel shared eye-opening insights, and FINRA’s Amy Sochard provided a critical definition:
“If a firm has arranged for an influencer communication to occur or compensates the influencer for that communication, then the firm would be responsible for it, and it would have to be treated as a communication of the broker-dealer, meaning the firm would need to supervise and ensure that it complied with rules, including our content standards. And of course, things like record retention.”
This reinforces the necessity for firms to closely supervise finfluencers, as their communications are considered advertisements by FINRA and are treated as if they originated from the broker-dealer. Sochard further highlighted, “We also said in there that it should be made clear that these communications are advertisements because, especially back in 2017, it was not always clear to folks what was going on with these types of influencers. So, fast forward to 2021, and many firms had, in fact, started to use influencers in a pretty wide fashion to market their products…FINRA felt like this is an area we really needed to start taking a look at.”
Following this, FINRA launched a targeted exam involving 15 firms. Stephanie Gregory, Associate Director at FINRA, shared remarkable insights from their findings:
“Most firms in the sweep focused on…referral programs, and as a result, they had hundreds of thousands of new accounts open, and they paid some influencers millions of dollars. There’s a lot of money involved, and so obviously, we spent quite a bit of time looking at communications.”
The scope of this exam was significant, covering over 1,300 communications. Gregory noted, “The overall noncompliance rate was about 70%. We had three formal actions announced so far this year…We found that over half, about 55% of them, did not disclose that the advertisements were paid…We saw a lot of statements and claims promissory and misleading. They all tended to be about investment success.”
These findings underscore a critical point for firms leveraging finfluencers: the stakes are high, and the regulatory environment is becoming increasingly unforgiving. The 70% noncompliance rate and increased scrutiny highlight a clear trend—FINRA is intensifying its oversight of influencer marketing, particularly around transparency and accuracy in communications. For firms, this means that partnering with influencers is not just a marketing decision; it is a compliance obligation that requires robust controls, oversight, and documentation. Failure to implement these measures could not only lead to regulatory actions but also damage a firm’s reputation and client trust.
Key Takeaways: Staying Ahead of Regulatory Expectations
This year’s FINRA Advertising Regulation Conference highlighted the urgent need for compliance and supervision teams to stay on top of off-channel communications and influencer marketing. With FINRA ramping up its scrutiny and revealing high noncompliance rates, firms need to be proactive about monitoring and record-keeping. It’s essential that all communications, especially those involving financial influencers, are properly disclosed, meeting regulatory standards, and are actively supervised. By prioritizing these steps, firms can avoid hefty fines and exams while building a culture of compliance that safeguards their reputation. As the industry evolves, staying ahead of these regulatory expectations will be vital for maintaining trust and integrity.
Connecting with Clients at On the ROCs
Shifting gears, the Red Oak team had a fantastic time connecting with clients during our On the ROCs event at Cuba Libre. It was a wonderful opportunity to discuss industry topics, build meaningful connections, and enjoy drinks and appetizers in a relaxed setting.
We’re excited to host another happy hour, ROC the House, at the upcoming NSCP National Conference. If you’re attending the conference and would like to join us, we’d be thrilled to have you. You can register here.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes.