Social Media Monitoring - Failure to Communicate

1. TO MONITOR OR NOT TO MONITOR… Let’s dig into why MML was fined: both penalties were incurred for failing to monitor for non-compliant activities.

2. INTRODUCTION Let’s dig into why MML was fined: both penalties were incurred for failing to monitor for non- compliant activities. In the first instance, the firm admitted benefiting from recommendations for select mutual fund share classes made by their contracted clearing broker. According to the SEC and the $2.1 million settlement, the affiliated broker never disclosed conflicts of interest to their clients. 01 The transgressions were episodic from October 2015 through to 2019. This is a classic example of the “fox watching the hen house” where MassMutual, and MML, were supposedly monitoring the clearing broker’s activities – only they weren’t doing so. And that lack of monitoring cost MML two million dollars. 02

3. SEC POUNCES ON ROARING KITTY The third instance is far more interesting and has the explosive potential to trigger dramatic changes in monitoring. Is it incumbent upon the financial firm to rigorously monitor all its employees’ social media and public commentary? Apparently so given the nearly five million dollars fine levied on MML. The fine has spurred extensive changes to the social media policies of the subsidiary’s parent, MassMutual. No doubt other firms are grappling with the same need to do so.

4. WE HAVE A FAILURE TO COMMUNICATE… “social listening” and it’s a phrase you’re going to hear often, even if you’re external to the RegTech industry There were two compliance monitoring failures in the Roaring Kitty saga. One, high trades are supposed to get flagged. Once flagged, compliance officers are tasked with investigating the trade thoroughly to assess if any financial crime was committed by making the trade. That didn’t happen. Two, social media posts – personal and private – are supposed to be duly monitored by all MassMutual subsidiaries. Again, MML failed here with its inadequate monitoring efforts for social media.

5. SOCIAL LISTENING IS THE NEXT FRONTIER Listening goes beyond tracking and interpreting statements made by your audience about your brand; it needs to be comprehensive enough in scope to detect activities relevant to your company. In the case of Roaring Kitty, high trade volumes and pumping up the value of a stock should be flagged by all financial firms – regardless of which one employs the person making the posts.

6. Many firms aren’t closing the loop on monitoring their employees’ personal social media feeds. One reason is the sheer volume of content to sift through; this can be an insurmountable challenge for smaller firms that lack the RegTech resources required for such a task. Another reason is the obfuscation of bad behavior masked by emojis. The bottom line? Monitoring is the essence of compliance. If you don’t do it, you’ll have to pay the price.

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