Pub. 4 2013 Issue 3

www.wvbankers.org 20 West Virginia Banker Introduction. It seems we hear about a news event involving social media every day. Whether it is in world news, politics, entertainment and sports, social media seems to be the source of a large amount of publicity. While some of the social media activity results in a positive impact on the individual or employer, not all of the news events that occur with social media are positive. The financial institution industry has also become involved in the use of social media. Banks have identified various potential uses of social media technology. As a result of the increased uses, banks requested guidance from the regulatory authorities. On January 22, 2013, the Fed- eral Financial Institutions Examination Council (FFIEC) issued proposed guid- ance on social media titled “Social Media: Consumer Compliance Risk Management Guidance (Docket No. FFIEC-3-13-0001”). Definition. According to the FFIEC, social media was considered to be a “form of interactive online communication in which users can generate and share con- tent through text, images, audio, and/or video. Social media can take many forms, including, but not limited to, micro-blog- ging sites (e.g. Facebook, Google Plus, MySpace and Twitter); forums, blogs, customer review websites and bulletin boards (e.g. Yelp); photo and video sites (e.g. Flickr and YouTube); sites that enable professional networking (e.g. Linkedin); virtual worlds and social games.” The key point to note in the definition is that the communication is interactive. Uses of Social Media. What does this all mean to a bank? Banks can utilize the interactive nature of the social media communication to reach customers and potential customers in a timelier and more frequent manner. In addition, a bank can expand beyond their typical geo- graphical area through the use of social media. Various uses of social media have been identified by banks and were ad- dressed by the FFIEC. These uses include the following: • Advertising and marketing • Providing incentives • Facilitating applications for new accounts • Inviting feedback from the public – complaints or loan pricing Other uses of social media for banks will develop over time as social media evolves and customers who use social media demand more interactive communication with their bank representatives. Risks of Using Social Media. The use of social media, like other delivery and communication channels used by banks, can impact the various risk components of a bank. These risks include: • Consumer compliance and legal risks – These risks arise from the potential for violations of, or noncon- formance with, laws, rules, regula- tions, prescribed practices, internal policies and procedures or ethical standards. The major emphasis was that the existing laws and regulations need to be considered and adhered to when delivering product and services with social media. Some examples noted by the FFIEC included: ○ ○ Deposit and lending products ■ ■ Truth in Savings Act / Regulation DD ■ ■ Fair Lending Laws: Equal Credit Opportunity Act / Regulation B and Fair Housing Act ■ ■ Truth in Lending Act / Regulation Z ■ ■ Real Estate Settlement Proce- dures Act ■ ■ Fair Debt Collection Practices Act ■ ■ Unfair, Deceptive, or Abusive Acts or Practices ■ ■ Deposit insurance including the advertising and notice of the FDIC Membership and appropriate disclosures regarding product offerings in- cluding the lack of insur- ance by the FDIC. ○ ○ Payment systems ■ ■ Electronic Fund Transfer Act / Regulation E ■ ■ Rules application to check trans- actions ○ ○ Bank Secrecy Act / Anti-Money Laundering Programs (BSA / AML) ○ ○ Community Reinvestment Act ○ ○ Privacy ■ ■ Gramm-Leach-Bliley-Act Privacy Rules ■ ■ CAN-SPAM Act and Telephone Consumer Protection Act ■ ■ Children’s Online Privacy Protec- tion Act ■ ■ Fair Credit Reporting Act • Reputation risk – Reputation risk is the risk arising from negative public opinion. The negative public opinion could result in dissatisfied customers / consumers and harm the bank’s reputation even if the bank did not violate any laws. The bank needs to Social Media Uses, Benefits and Risks By Chris Joseph, CPA, CISA, CRISC, CITP