Marketing compliance in financial services

What is marketing compliance, and why is it important?

Marketing compliance refers to the adherence to laws, regulations, and internal policies that govern promotional and advertising activities. For financial institutions, these standards are critical to ensure that marketing materials are truthful, non-deceptive, and transparent.

Regulatory bodies in the US such as the Consumer Financial Protection Bureau (CFPB), Financial Industry Regulatory Authority (FINRA), and Securities and Exchange (SEC) impose strict guidelines to protect consumers from misleading information in financial product advertising.

A recent rise in the number of bank-fintech partnerships (also referred to as embedded finance or banking as a service) present growth opportunities and unique risks, particularly in marketing compliance. These collaborations can rapidly expand customer bases through innovative products, but they also increase exposure to regulatory scrutiny if marketing practices lack proper oversight. With fintechs often employing aggressive digital marketing techniques, any misleading or non-compliant promotions could damage a bank's reputation and lead to costly regulatory actions.

Non-compliance in any bank-related marketing can lead to reputational damage, legal consequences, and substantial financial penalties. Financial services are particularly vulnerable due to the complexity of their products and the high level of trust customers place in financial institutions. Compliant marketing helps mitigate regulatory risk, maintain brand integrity, and build long-lasting customer relationships.

This article will offer a general guide for US-based financial institutions, but it is important to consult with your counsel for applicability to your own financial institution.

Types of marketing used in financial services

Financial institutions utilize various types of marketing to reach and engage potential customers, including:

1. Digital marketing: This includes search engine marketing (SEM), social media campaigns, email marketing, and display ads. With the rise of online banking and fintech, digital channels have become central to most marketing strategies.
2. Content marketing: Many banks and financial institutions use educational content, such as blogs, whitepapers, and videos, to attract and engage customers. This type of marketing is valuable for positioning the institution as a trusted financial advisor.
3. Traditional advertising: Although digital marketing is prevalent, traditional methods like print ads, flyers, branch signage, TV commercials, and radio spots are still used, particularly to reach older demographics.
4. Event sponsorships and partnerships: Financial institutions may sponsor events or partner with organizations to reach a broader audience. Ensuring that sponsorship messaging aligns with regulatory expectations is essential for maintaining compliance.
5. Email marketing: Fintechs and financial institutions use email marketing campaigns to engage customers directly with personalized updates, product offers, and educational content, strengthening customer relationships. These campaigns help drive customer retention and acquisition by delivering targeted, timely messages that increase brand loyalty and encourage service adoption.
6. Referral and affiliate programs: While not as common with banks, fintechs often incentivize current customers or third-party affiliates to bring in new business. However, these programs require careful monitoring to ensure promotional practices align with regulatory standards.
7. Texting, SMS, outbound calling and/or robocalling: A financial institution may perform outbound sales calling or texting to proactively reach potential or existing customers with personalized service offers, helping to drive new business and deepen client relationships. This direct approach allows representatives to address customer questions in real-time, build trust, and effectively promote products or services tailored to specific needs.

Top marketing compliance risks

Marketing compliance risks in financial services often stem from complex products, evolving regulations, and diverse marketing tactics. Here are some key risks to monitor:

1. Misleading claims: Claims that exaggerate benefits, minimize risks, or use unclear terminology can mislead customers. Marketing materials must accurately represent products without suggesting unrealistic returns or guarantees. Failure to do so can result in violations related to Unfair, Deceptive, Abusive Acts or Practices (UDAAP). Refer to these examples of violations, and regulatory guidance.
2. Inadequate disclosures: Regulatory agencies require specific disclosures for products like deposits, loans, credit cards, and investment services. Missing or improperly formatted disclosures can lead to compliance violations. The following are examples of violations and regulatory guidance.
3. Misrepresentation FDIC insurance: Advertising FDIC insurance requires careful attention to detail, as misleading statements about deposit insurance can have serious regulatory and reputational consequences. If a bank or fintech partner inaccurately represents FDIC insurance — such as implying that non-deposit products are insured or that certain high-yield accounts are fully covered — it can create confusion and erode customer trust. Errors in FDIC coverage can also lead to regulatory fines, increased scrutiny, and potential customer claims if expectations of coverage aren't met during a crisis. Here is a recent example and additional regulatory guidance.
4. Fair lending and non-discrimination: Marketing practices must be designed to avoid discrimination. Targeted campaigns, if not carefully planned, could unintentionally exclude or discriminate against certain groups, leading to potential fair lending violations.
5. UDAAP and reputational risk of third-party affiliates: Relying on affiliates or referral programs can introduce reputational and compliance risks if those partners do not follow the institution’s guidelines. An institution can be held liable for deceptive practices by affiliates. Affiliates should be properly vetted, managed, and subject to ongoing review.
6. Haphazard social media use: Social media marketing in financial services presents unique compliance risks due to the rapid, public nature of these platforms and the potential for misinterpretation or misinformation. Posts can quickly go viral, amplifying any errors or misleading claims about products, services, or guarantees, which could lead to regulatory penalties and reputational damage. Additionally, the casual tone often used on social media may conflict with the legal precision required in financial disclosures, leading to compliance lapses.
7. Email marketing: Financial institutions face significant risks under the CAN-SPAM Act if email marketing campaigns do not comply with requirements, such as providing accurate sender information and a clear unsubscribe option. Non-compliance can lead to hefty fines, damage to the institution's reputation, and erosion of customer trust if recipients feel misled or spammed by unwanted communications. For example, each separate email in violation of the CAN-SPAM Act is subject to penalties of up to $51,744, so non-compliance can be quite costly!
8. Telephone consumer protection act: The Telephone Consumer Protection Act (TCPA) is a U.S. regulation that restricts telemarketing calls, text messages, and the use of automated dialing systems to protect consumers from unwanted solicitations. Compliance with TCPA is crucial for financial institutions to avoid substantial fines, maintain customer trust, and ensure responsible communication practices.

What should an auditor consider when performing a marketing compliance audit?

When conducting a marketing compliance audit, internal auditors should focus on the processes, controls, and compliance culture related to marketing activities, including testing of actual live marketing content for proper approval. Key areas to consider include:

1. Policy and process review: Evaluate the marketing compliance policies and review the individual processes. Confirm that they are up-to-date and aligned with regulatory requirements. Ensure that there is an appropriate escalation for employees who publish marketing content without appropriate marketing compliance review and approval.
2. Approval and documentation procedures: Check whether the institution has a sound documented process for reviewing and approving marketing materials. Does it include all relevant compliance obligations, including a review for potential reputational risk? Look for evidence of compliance approvals, training records, and adherence to disclosure requirements. A sound program will have approved marketing content along with evidence of review and approval readily available.
3. Risk assessment and monitoring: Assess whether marketing risks, such as misleading claims and inadequate disclosures, have been identified and are regularly monitored.
4. Third-party compliance management: Determine how the institution oversees third-party marketers and affiliates. Review contracts, compliance standards, and any audits or assessments conducted on these partners.
5. Testing marketing samples: Auditors may test a sample of marketing materials to identify potential issues in messaging, disclaimers, or target audience selection. This step can help identify gaps in the compliance review process.
6. Technology suggestions: As a possible improvement, review whether the process could be enhanced by technology to save time and money. Various technologies can streamline marketing compliance review and monitoring by automating processes and enhancing oversight. AI-driven tools can scan and flag marketing content for regulatory violations, such as improper disclosures or misleading language before it goes live. Workflow automation platforms support collaboration across compliance and marketing teams by tracking review stages and approvals, ensuring thorough documentation and accountability. Additionally, machine learning algorithms can monitor social media and web content in real-time to detect compliance risks as they emerge, while natural language processing (NLP) tools analyze text for accuracy and alignment with regulatory standards. These technologies not only reduce manual effort but also improve speed, accuracy, and consistency in compliance management.

Conclusion

In the highly regulated financial services industry, marketing compliance is essential for safeguarding consumer trust and mitigating legal and reputational risks. Internal auditors play a critical role by ensuring that marketing activities align with both regulatory standards and the institution’s ethical guidelines. A robust marketing compliance review process not only protects the institution but also enhances its credibility with customers.

By understanding marketing compliance risks and implementing effective auditing practices, auditors can contribute to a culture of compliance and accountability in their organizations. In today’s marketing landscape, this vigilance is key to supporting sustainable growth and protecting the institution’s reputation.

What should an auditor consider when performing a marketing compliance audit?

When conducting a marketing compliance audit, internal auditors should focus on the processes, controls, and compliance culture related to marketing activities, including testing of actual live marketing content for proper approval. Key areas to consider include:

1. Policy and process review: Evaluate the marketing compliance policies and review the individual processes. Confirm that they are up-to-date and aligned with regulatory requirements. Ensure that there is an appropriate escalation for employees who publish marketing content without appropriate marketing compliance review and approval.
2. Approval and documentation procedures: Check whether the institution has a sound documented process for reviewing and approving marketing materials. Does it include all relevant compliance obligations, including a review for potential reputational risk? Look for evidence of compliance approvals, training records, and adherence to disclosure requirements. A sound program will have approved marketing content along with evidence of review and approval readily available.
3. Risk assessment and monitoring: Assess whether marketing risks, such as misleading claims and inadequate disclosures, have been identified and are regularly monitored.
4. Third-party compliance management: Determine how the institution oversees third-party marketers and affiliates. Review contracts, compliance standards, and any audits or assessments conducted on these partners.
5. Testing marketing samples: Auditors may test a sample of marketing materials to identify potential issues in messaging, disclaimers, or target audience selection. This step can help identify gaps in the compliance review process.
6. Technology suggestions: As a possible improvement, review whether the process could be enhanced by technology to save time and money. Various technologies can streamline marketing compliance review and monitoring by automating processes and enhancing oversight. AI-driven tools can scan and flag marketing content for regulatory violations, such as improper disclosures or misleading language before it goes live. Workflow automation platforms support collaboration across compliance and marketing teams by tracking review stages and approvals, ensuring thorough documentation and accountability. Additionally, machine learning algorithms can monitor social media and web content in real-time to detect compliance risks as they emerge, while natural language processing (NLP) tools analyze text for accuracy and alignment with regulatory standards. These technologies not only reduce manual effort but also improve speed, accuracy, and consistency in compliance management.

Conclusion

In the highly regulated financial services industry, marketing compliance is essential for safeguarding consumer trust and mitigating legal and reputational risks. Internal auditors play a critical role by ensuring that marketing activities align with both regulatory standards and the institution’s ethical guidelines. A robust marketing compliance review process not only protects the institution but also enhances its credibility with customers.

By understanding marketing compliance risks and implementing effective auditing practices, auditors can contribute to a culture of compliance and accountability in their organizations. In today’s marketing landscape, this vigilance is key to supporting sustainable growth and protecting the institution’s reputation.