It turns out that “you do you” is not always the right advice–at least not for emerging fintech companies trying to crack the regulated financial services marketplace.
In their zeal to disrupt traditional finance, some fintechs have adopted the irreverent communications style of CEOs like Elon Musk–Time’s Person of the Year. However, this approach may run afoul of regulatory authorities tasked with protecting investors and put fintech innovators at risk.
Consider that in 2018, Elon Musk and Tesla settled securities fraud charges brought by the SEC relating to allegedly misleading statements (the infamous “funding secured” tweet about taking Tesla private). Then, in June 2021, the SEC warned Tesla that Mr. Musk had violated the terms of that settlement by failing to have certain social media posts approved by the company’s legal counsel.
Fintechs may misinterpret the SEC’s treatment of Tesla as a “slap on the wrist.” This may lead to the mistaken conclusion that they won’t be penalized for aggressive public statements, including inflated claims about the performance of their products or the growth prospects of their business.
Regulators scrutinize marketing materials
In reality, the SEC takes a dim view of misleading marketing and advertising practices, including public statements in social, broadcast, or print media. Regulators tend to see such practices, especially inflated performance claims or credentials, as the “canary in the coal mine” indicating other compliance weaknesses. If a fintech was subject to regulatory charges of misleading marketing, it could tarnish its reputation with customers, investors and partners. An enforcement action lives forever on the public SEC website for competitors, prospects, and potential investors to see.
The SEC’s enforcement action against Robinhood Markets is a case in point. In October 2018, Robinhood’s CEO, Vlad Tenev, issued blog posts with statements such as “We send your orders to the market maker that’s most likely to give you the best execution.” The SEC charged Robinhood in December 2020 with misleading customers by failing to disclose that it receives “payment for order flow” from brokerage firms, thereby questioning whether its public claims of “best execution” were properly disclosed.
The lesson here is that building your brand by being audacious and provocative is often not the best communications strategy for a newly-minted fintech in a regulated financial marketplace.
What gets fintechs and other businesses with disruptive models into compliance trouble is the tendency to do everything, including communication, at a breakneck pace. Mark Zuckerberg’s philosophy of “move fast and break things” may not work well in a regulated industry, such as finance. Fortunately, it is possible to maintain an image as an innovator and disruptor without harming your reputation and access to growth capital.
Compliance and communications
Based on our experience as compliance and communications professionals, we recommend that fintechs adopt “quality control” processes for their public utterances, and then abide by those self-imposed rules. This may slow down communications, but that’s a small price to pay to avoid a potentially damaging enforcement action.
The C-suite and marketing team should partner with the company’s compliance function to pre-clear all advertising and promotional materials or public statements. That will require some give-and-take on both sides. The CEO or CMO must recognize that a legal review will take time, while compliance must understand the importance of expediting the process. A 24-hour turnaround will probably serve the interests of all parties.
While it is relatively easy for Compliance to review written materials such as marketing brochures, advertisements, or website copy, public statements are harder to oversee. Companies can avoid problems by conducting messaging exercises ahead of time and developing approved messages that can be guideposts for future public utterances.
The company should designate which spokespersons are authorized to speak, tweet, or otherwise communicate publicly on its behalf. They should be coached in staying on point during media interviews and public appearances while avoiding misleading or overly promotional statements, performance claims, or projections. It’s also advisable to establish an official social media policy that sets forth who can represent the company and what topics are permitted.
The confluence of innovative business models and nearly instantaneous communication leads to tremendous opportunities for fintechs. But it also can create regulatory enforcement challenges. By pursuing smart compliance and communications strategies, fintechs can avoid missteps that may keep a promising new business from reaching its potential.
You do you, but do it the right way.
Todd Cipperman is the founding principal of Cipperman Compliance Services, a leading provider of chief compliance officer services to money managers, registered funds, family offices, private equity firms, broker-dealers, and regulated fintech companies. Seth Linden is the president of Dukas Linden Public Relations, a communications firm serving clients in finance, asset management, fintech, and professional services.
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