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Record-keeping for financial promotions - where are we now?

Marketing Team

David Clee, CEO, MirrorWeb

The FCA’s COBS 4.11 states that most financial firms must keep records for at least three years, while regulators in general are insisting more and more heavily on good record-keeping, especially when it comes to financial promotions.

In an ever-evolving era of fast-paced digital innovation, businesses in all industries have woken up to the importance of online communications and social media as tools that can help them with everything from sales to customer service. The financial services industry in particular is expecting high returns on its investment in an array of quickly-growing web-based and social media channels, with annual revenue growth related to this area averaging 31%.

However, the opportunities that the financial services sector wants to exploit through digital communications and social media are not without their challenges. Indeed, the emergence of fresh channels of communication on which it can promote products and attract new investors has naturally elicited a strong response from regulators, with new and far-reaching record-keeping requirements becoming a great burden for compliance teams. This comes alongside an already complex web of regulatory blue 'tape with' which compliance officers must grapple.

With regulators cracking down on new ways of communicating, marketing and compliance teams are now looking for software that can help them meet their burdensome obligations quickly, streamline their operations and help them cope with an increasingly regulated digital environment.

Getting to grips - the regulatory backdrop

Many of today’s regulatory bodies, including the FCA, ESMA, FINRA and the SEC, require financial firms to adhere to strict rules that govern record-keeping and financial promotion. Per the FCA's rule COBS 4.11.1, “a firm must make an adequate record of any financial promotion it communicates or approves,” which encompasses “any form of communication (including through web-based and social media) capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity.”

Given the sheer abundance of communication channels that this definition encompasses, including all website communications, weblogs, microblogs and social and professional networks such as Facebook, LinkedIn, and various fora, this poses a considerable challenge to the compliance teams at financial firms.

Further adding to the burden of record-keeping on marketing and compliance teams, the FCA’s COBS 4.11 states that most records should be kept for at least three years and, in cases relating to a life policy, occupational pension scheme, SSAS, personal pension scheme or stakeholder pension scheme, it can be up to six years. In promotions relating to MiFID (the Markets in Financial Instruments Directive) or "equivalent third country business," they have to be kept for five years. On the other end of the spectrum, if a financial promotion relates to a pension transfer, pension conversion, pension opt-out, the records of it must be kept indefinitely.

Troublous obligations

Changes to digital communications obviously present a unique set of problems for firms when it comes to financial promotions and regulatory archiving.

A large proportion of firms still rely on manual processes which are ill-equipped to meet the challenges and complexities of the current regime, so many of them still need to take on new software. The overwhelming demand for comprehensive archiving, data collection and integration, as well as the need for complex monitoring and analytic software makes it almost impossible for marketing and compliance officers to do this manually and without support, which is time-consuming and expensive.

However, the need to take the necessary steps is all the more pressing because regulators are scrutinising financial promotions, particularly on social media, more and more. Indeed, a recent backlash against peer-to-peer lenders and proptech (property technology) platforms, coupled with The London Capital & Finance (LCF) scandal last year, put the credibility of financial promotions at the top of the FCA’s agenda. As a result, the regulator is now placing applying pressure to financial firms in its crusade to ensure that every promotion is fair, clear and not misleading. It is essential for financial institutions to be able to prove this by keeping good records.

Technology to the fore

With the regulator beginning to take action against non-compliance, firms should be taking the time left to them to review the way they do things and evolve processes that will allow them to meet their obligations efficiently and effectively.

New tech plays an important role in the problems we have mentioned because it allows for end-to-end website archiving and social media archiving - a process in which all digital assets are collected to display a website exactly as it appeared at a specified time and on a specified date. Once the software collects a record of this, it holds it in a web archive, indexes archives and makes them fully searchable, allowing firms to find content on demand.

You can read the original article at Compliance Matters by clicking below.

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