FINRA and Social Networking Sites
As the technologies and uses of online social media, such as Facebook and Twitter, by regulated members of the financial services community continue to grow and evolve, the regulations – and the regulators – struggle to keep up.
United States
Media, Telecoms, IT, Entertainment
As the technologies and uses of online social media, such as
Facebook and Twitter, by regulated members of the financial
services community continue to grow and evolve, the regulations
– and the regulators – struggle to keep up.
Recently, the Financial Industry Regulatory Authority (FINRA)
issued a Regulatory Notice (No. 10-06) providing
guidance to firms and their personnel regarding the use of these
networks. Although the types of media may change daily, FINRA's
position and rules do not - firms must find a way to apply existing
rules to any and all types of new media and networking activities.
The topics covered in this notice include:
Social Media Policies and
Procedures: Firms must implement policies and procedures
reasonably designed to assure that their personnel who contribute
to social media sites for business purposes are properly
supervised, have the necessary training and background to engage in
such activities, and do not create undue risks to investors.
At a minimum, all firms must
implement policies that (1) prohibit associated persons from
engaging in business communications on a social media site that is
not subject to the firm's supervision; and (2) allow only those
associated persons who have received appropriate training about the
firm's policies and procedures to engage in communications on
these sites.
Types of Communications -
Principal Approval: "Interactive electronic
forums" are included in the definition of "public
appearance" in NASD Rule 2210, and therefore, do not require
prior principal approval. FINRA has stated that unscripted
participation by firm personnel in chat rooms or online seminars,
and real-time interactive communications on blogs and other
interactive sites such as Facebook, Twitter and LinkedIn would be
considered interactive electronic forums. However, static content
would be considered an "advertisement" under Rule 2210,
and therefore, must be approved by a principal prior to
posting.
Both static and interactive content
must still be supervised in a manner reasonably designed to ensure
that it does not violate the content requirements of FINRA's
communications rules. As a general matter, firms have flexibility
in designing their supervisory structure, and may employ risk-based
principles to determine the extent and manner of review
(e.g., prior-use vs. post-use review).
Suitability
Standards: Any investment "recommendation" made
through a social media site triggers the suitability requirements.
Special concerns are raised if the recommendation is widely
available to users of the site or pertains to specific investment
products. As a best practice, FINRA suggests prohibiting all
interactive electronic communications that recommend a specific
investment product unless they have been pre-approved by a
principal.
Recordkeeping
Duties: A firm that intends to communicate, or permit its
associated persons to communicate, through social media sites must
ensure that the firm can retain and retrieve records of those
communications in accordance with SEC and FINRA rules.
Third-Party Posts:
Note that FINRA does not usually treat posts by customers or other
third parties as the firm's communications. However, in some
circumstances, a third-party post may potentially be attributable
to the firm if it (1) was involved itself in the preparation of the
content, or (2) endorsed or approved (explicitly or implicitly) the
posted content. Prominent disclosure that third-party posts neither
reflect the views of the firm, nor have been reviewed for
completeness or accuracy, may help avoid this issue.
It should be noted that the notice only addresses the use by a
firm or its personnel of social media sites for business
purposes. It is highly recommended that a firm's policies and
procedures in this area also address personal usage of these sites
by firm personnel.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.