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What Does FINRA Say about Social Media?

The twin goals of protecting investors and overseeing registered representatives in the broker/dealer channel has been the responsibility of the Financial Industry Regulatory Authority (FINRA). The self-regulating arm of the brokerage industry, FINRA is no stranger to interpreting technological change to its member advisors.

As long ago as 1999, the agency specifically likened a registered representative's participation in Internet chat rooms to making in-person presentations to investors, subject to the same rules governing such presentations. (For example, a firm's registered principal does not have to approve extemporaneous comments in advance that are made at such events.) Four years later FINRA codified the phrase public appearance to include participating in interactive electronic forums.

The environment continues to evolve as social media use in the business and personal world grows exponentially. In 2009, FINRA formed a committee of agency staff and industry reps to examine the implications of social media. The goal, the agency said, was “to ensure that – as the use of social media sites increases over time – investors are protected from false or misleading claims and representations, and firms are able to effectively and appropriately supervise their associated persons' participation in these sites.”[1] FINRA added that it wanted a flexible approach that would allow firms to communicate with clients and investors using the new methods afforded by social media.

THREE NEW AREAS OF FINRA GUIDANCE

A year later, FINRA released new guidance on social media use for business purposes.[2] It had specific things to say about certain aspects of the business:

Suitability Responsibilities – Representatives who recommend securities via social media are still subject to the requirement that such investments be suitable to their clients, FINRA said. Whether a particular communication constitutes a recommendation depends on the circumstances of the communication, the agency added.

FINRA took into account that fact that social media can cast an enormous net. It told reps to keep in mind that, when they make recommendations on different social platforms, such recommendations would need to be suitable for every investor to whom they are made. That could mean hundreds or even thousands of people, depending on how the rep is using the platform.

So there was no ambiguity, FINRA noted that it has disciplined firms and reps over interactive electronic communications that contained misleading statements about products in recommendations.

Static Content versus Interactive Content – FINRA went into detail on how to compliantly use blogs. It drew a distinction between two types of content. Static content is just that – content that remains the same until it is changed by a firm or individual. It can include blog posts by an advisor, for example, or newsletters, photos, advisor websites, or social media profiles. All of these are considered advertising for the purpose of compliance and must be approved by a firm's principal before they go up.

Interactive content that allows real-time back-and-forth communication between reps and investors does not require pre-approval, but is still subject to supervision, the agency said. Interactive can include updates on LinkedIn and Facebook, tweets, and blog comments.

Recordkeeping – Firms that use social media for business must ensure that they can retain records of such business, FINRA held. The agency observed that some tech companies were providing systems that would allow broker/dealers to record social media-related communications both on and off the main website of the firm; it didn't have opinions on how valid such services might be, but said advisors would have to ensure that whatever services were being provided dovetailed with industry requirements. FINRA subsequently held that broker-dealers

FIGURE 8.1 FINRA on Social Media

FINRA is a trademark of the Financial Industry Regulatory Authority Inc. FINRA is not affiliated with the author or publisher of this work and does not endorse it.

must keep certain records for a period of at least three years, with the first two years in an easily accessible place.

  • [1] “Regulatory Notice 10-06: Social Media Web Sites,” FINRA, January 2010, finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/pl20779.pdf. Accessed June 8, 2014.
  • [2] FINRA, “Regulatory Notice 10-06: Social Media Web Sites.”
 
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