Risk Management and Social Media for Banks – Sweeny Legal

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Risk Management and Social Media: A Strategy for Community Banks

For most people, risk on social media platforms like Facebook and Twitter largely entails posting something embarrassing. For community banks, social media risk means something else entirely. “The question for banks is, how do they minimize the risk while maximizing the reward?” Steven J. Ramirez – CEO of the management consulting firm Beyond the Arc – wrote in a recent ABA Banking Journal article.

A bank’s reputation, Ramirez wrote, is more important to it generating revenue than the size of its branch network or the number of bankers it has on staff. “Social media can help you to build your reputation and share your organization’s strengths with a wider audience. Effective use of social media recognizes that conversations and authentic interactions are critical. When you engage in this way, you help both prospective and existing customers to see what makes you different from your competitors. Social media can be a window showing “the real you.” But whether or not your bank actively participates on social platforms, you cannot ignore social media and need a strategy to manage the risks.”

Earlier this year, the Federal Financial Institutions Examination Council (FFIEC) – the interagency body that creates uniform principles and oversight standards for bank examiners from several agencies, including the Consumer Financial Protection Bureau (CFPB) – provided social media guidance. A draft FFIEC policy document states that “a financial institution that has chosen not to use social media should still be prepared to address the potential for negative comments or complaints that may arise within the many social media platforms…” In other words, Ramirez wrote, banks will need to collect and respond to consumer complaints shared through social media as part of an overall complaint management program. “This is more than a regulatory requirement, it makes good business sense. As with any asset, you want to protect your reputation and maintain its value.”

How to protect one’s bank in the world of social media? “Mitigating the risk associated with social media requires a multifaceted approach,” Ramirez wrote. When thinking through strategy, the factors bankers should consider include:

• Governance

• Policies and procedures

• Due diligence for selecting and managing third party providers

• Employee training

• Audit and compliance

• Reporting to senior management

Monitoring social media outlets and customer feedback is an important practice. Not only does it allow bankers to be alert to any potential threat, it can provide important feedback. “Tracking customer sentiment will raise awareness of how customers perceive your bank’s products and services so that you can immediately identify potential threats to your reputation and prevent the issue from happening altogether. Quick identification of an emerging issue, like a service break, allows a business to fix problems before they affect a large number of customers.” Text analysis can also be utilized to categorize comments based on their content. Once the average number of comments on each theme is established, analytics software can look for significant deviations that highlight potential threats.

Another important practice is establishing social media presence on all prominent platforms. “Even if you’re not able to manage multiple social profiles at this time, it is a good strategy to reserve your bank’s name and create an official presence. This helps you to avoid passive risk, and prevents pranksters from impersonating your organization through fake profiles.”

One company that knows the trouble a fake profile can cause is none other than Bank of America. Soon after Google Plus introduced its company brand pages, someone created a fake Bank of America profile with the headline “We took your bailout money and your mortgage rates are going up.” The fake profile was active for more than a week before being taken down.

Finally, it’s important for banks to create a crisis communication plan for social media that will allow them to react to issues in a timely and efficient manner. “While putting out a statement of support for customers may seem trivial, remaining silent in a crisis situation can be perceived as negative, both in the eyes of the consumer and the public. In addition to clarifying the issue and offering an apology to customers, banks should also utilize their available resources, such as social media and email communication, to provide customers the opportunity to ask questions. As with any business situation – good or bad – actions speak louder than words for the customer.”


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2 responses to “Risk Management and Social Media for Banks – Sweeny Legal

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