We’ve all heard of social media in some form or the other. We see the world changing toward the virtual environment – tweets, pings, and texts – from the most casual communication among friends to those of National and global significance like the 2012 U.S. Presidential election. Twitter, MySpace, Hi5, Last.FM, YouTube, and Flickr are social networks with which you may be familiar or have heard about recently.
Social media is simply one way today’s society has decided to use the internet. Remember back in time when we simply used the internet to look up information or make an online purchase? Or, think even farther back to looking in hard copy catalogues and placing an order with a real person over the telephone? We now insert ourselves into the World Wide Web and connect instantaneously with all sorts of people and organizations. This connectivity has had a far-reaching effect on the entire world and social media is used by all sorts: businesses, banks, governments, and individuals. Over the past few years, financial institutions have increased the use of social media as an efficient and cost-effective way to communicate with clients, prospects, and others. Social media interaction provides a convenient method of communication on a very personal level for the user. Managed effectively, financial institutions using social media are provided a great marketing venue and a fast and inexpensive manner for providing personal customer service.
Before you “click to send,” there are some precautions to take to use these new media safely and manage the risks for your institution. Use of social media becomes a part of the financial institution’s procedures and the messages carried become supplements to disclosures, advertising and customer and public notices.
The widespread use of social media and the relative novelty as a tool have brought them under the regulators’ microscopes. Similar to any other new delivery system, product, or service, use of social media should be reviewed carefully and tested before implementation, monitored on an on-going basis, and made a part of risk management oversight. A great place to start is a risk assessment.
Begin by identifying all the parameters of how your institution intends to use social media and the potential risks, including: reputational, legal, compliance, and operational. The State of California Department of Financial Institutions (“DFI”) (February 2012, DFI Monthly Bulletin Volume 15, Issue 8) provides several key points a financial institution should consider prior to embarking on the social media wave. This list is a good starting place to which you can add your own institution-specific questions.
Once the risk assessment has been completed, policies and procedures should be developed and implemented to address all areas of social media. Risk mitigation plans should be developed and implemented parallel to the social media business plan. Consider the key elements of risk management that would typically be established for a new product or service:
Social Media is becoming one of the most rapidly growing ways for businesses to communicate with existing clients and potential clients alike. To successfully use these vehicles as cost-effective communication tools, financial institutions must understand how they can effectively manage their potential risks.