The Office of the Financial Supervision Authority (UKNF) has published a draft position of the office on the use of social media by supervised entities. The preparation and publication of this position has to do with the increasing popularity of social media.
It also concerns entities supervised by the Polish Financial Supervision Authority which use social media as an additional communication channel to promote and sell their financial services and products. In the opinion of UKNF, the use of social media brings benefits connected with the possibility to reach a wider audience with informational and promotional content. On the other hand, it generates certain legal and reputational risks for supervised entities. Therefore, it is necessary to set a certain framework in the use of such communication channels.
To whom is UKNF’s position addressed?
UKNF’s position is addressed to all entities supervised by the Polish Financial Supervision Authority. It applies in particular to such entities as banks, brokerage houses, pension funds, payment institutions, and public companies. The guidelines set out in the position paper should be applied not only by supervised entities but also by the employees of such entities.
What issues does the UKNF position statement cover?
UKNF’s position covers a number of issues related to the use of social media in the activities of supervised entities. These issues include the construction of the content of social media messages, the establishment of internal procedures to oversee the content published on social media, the archiving of content published on social media, and the involvement of third parties in the preparation and publication of content on the social media of supervised entities.
Policy on the use of social media by supervised entities
As part of the detailed guidelines, UKNF’s position indicates the need to develop and implement a policy on the use of social media by the supervised entity and persons employed by the entity. This policy should include, among others, a catalogue of social media used, rules for the use of devices for social media activity, indication of persons authorised to create and use accounts, and conditions for archiving and storing data.
Business accounts only
UKNF has made it clear that the use of social media should be entirely from company accounts. However, private accounts of employees of a supervised entity should not be used for this activity. As a rule, therefore, an employee of a supervised entity should not use his private social media accounts to publish content related to his employer (supervised entity). Referring to exemplary factual situations, UKNF explicitly allowed only for a situation in which an employee, via his social media, is directed to inquire about particular aspects of his employer’s activity. In such a situation, UKNF indicates that the employee may refer to sources of information about his employer and its services (e.g. referring to the employer’s website). However, in such a case, the employee’s message should be of an informative nature and not of a promotional-marketing nature. According to the office, this is necessary to ensure supervision over the form and content published in social media. Within the activity in social media, it is also unacceptable to use the so-called fictitious accounts unrelated to existing entities.
Requirements as to the form and content of publications in social media
While formulating further guidelines, UKNF indicated that information, marketing, and advertising messages in social media should be reliable, clear, and not misleading. It is also advisable to clearly mark marketing materials and place a reference to the entity’s website where it is possible to read detailed information about the promoted product or service. It is also necessary to inform about the use of automated mechanisms and processes in creating and making available the content if any.
As regards the provision of content, UKNF has allowed the supervised entity to create so-called closed groups, which bring together persons using a particular service or product of the supervised entity. However, the criteria for access to such a group should be objective and not discretionary.
The supervised entity should also be mindful of possible legal restrictions on the ability to promote particular products or services, audience groups, etc. Therefore, when publishing content in social media, a supervised entity should specify to which categories of customers a given product or service is addressed.
UKNF also pointed out that in some social media there are restrictions on the volume of content (e.g. the maximum number of characters in a post). However, these limitations cannot be exempt from reliably formulating the message. The message should present the benefits of the service or product, as well as the risks associated with it.
UKNF also referred to the phenomenon of so-called tagging, including hashtags. UKNF acknowledged the benefits resulting from this form of communication. However, it pointed out unacceptable activities, including the use of names or abbreviations of supervisory authorities or asset protection schemes, which may in some cases falsely imply that such authority has approved a given product or service or that a given product is covered by guarantee protection (unless such approval has actually taken place, as for example in the case of approval of a prospectus). UKNF has also allowed for the so-called targeting of the recipients of products and services, indicating, however, that this does not relieve the supervised entity from properly defining the target group.
Responsibility for posting, sharing, or commenting on posts
According to the draft position, a supervised entity is not only liable for the content it publishes and the content its employees publish in the course of their official activities. This responsibility also extends to cases where a supervised entity distributes content published by other users of social media (e.g. by liking, forwarding, sharing, posting a comment). This mainly concerns the situation when the supervised entity expressly or implicitly expresses approval of the content published by other users. The PFSA indicates that such actions may in certain cases generate legal risks (e.g. related to unfair competition, unfair market practices) and reputation risks.
Involvement of third parties in the preparation and publication of content in social media of supervised entities (including the so-called influencers)
UKNF also referred to the possible cooperation of supervised entities with the so-called influencers. The Authority did not deny the possibility of such cooperation but indicated that such cooperation may require additional requirements, such as obtaining an entry in the relevant register or concluding an outsourcing agreement. KNF also emphasized that the supervised entity is responsible for the content prepared and published by influencers.
As far as cooperation with external entities is concerned, UKNF has also allowed supervised entities to cooperate with agencies providing consulting services in the area of managing social media accounts. The FSA also in this case stressed that this form of cooperation may be subject to additional legal regulations, in particular when the agency has the ability to independently create and publish content in the social media of the supervised entity, without its prior approval. It is recommended that the structure of the supervised entity should include a specific unit (e.g. compliance department, designated person) dedicated to cooperation with the agency as well as control and approval of the content prepared by the agency. This is particularly important given the KNF’s position that a supervised entity bears responsibility for the content published by an agency on behalf of that entity. In terms of cooperation with agencies, UKNF’s position also covers additional aspects related to, inter alia, metadata and data analytics services (including the use of Big Data mechanisms, artificial intelligence algorithms, etc.), anti-social activities with the use of social media (so-called trolling) and the use of so-called bots.
UKNF also recommends creating detailed internal control mechanisms for publishing content on social media. In addition to the already mentioned policy on the use of social media, the recommended action is, first of all, to appoint control bodies in the internal structure (compliance department or persons designated to perform these tasks), which will be empowered to verify the content at the stage before its publication (ex-ante control) and at the stage after its publication (ex-post control – e.g. moderation of the discussion under the published post).
The draft position also published detailed guidelines on the storage and archiving of data posted on social media. The period recommended by the PFSA to store such data is 5 years from the moment of publication (unless a different term results from legal regulations). At the same time, UKNF recommends a broad scope of archiving, which should include not only individual content in its original form but also any modifications to this content and comments made by third parties.
UKNF also noted that social media posts may refer to financial instruments or commodity contracts. Therefore, there is a risk of market manipulation through social media, and the rules of using social media should be regulated to eliminate this risk. Moreover, social media should not be used to publish inside information on the financial instruments concerned (including shares).
The draft position also clarifies several requirements related to cyber-security. Requirements in this respect include, inter alia, two-step verification when logging in to social media accounts (where technically possible), the use of up-to-date versions of operating systems, and the use of appropriate security applications.
What is the binding force of UKNF’s position?
The draft position of UKNF will be subject to further market consultations after which the final content of the position will be published. It is also possible that after the publication of the final position, new regulations will be introduced concerning the use of social media by entities supervised by KNF. At this moment the draft position of UKNF constitutes a set of good practices for market participants (supervised entities).