A sign that use of social media has become truly widespread, FINRA, the Financial Industry Regulatory Authority and the largest non-governmental regulator for all securities firms doing business in the United States, issued some interesting new guidance to stock brokers intending to use Facebook and Twitter.
In Regulatory Notice 10-06 issued yesterday, the industry regulator attempts to provide further clarity on how financial professionals can utilize participation media.
Here’s the gist — FINRA takes social media trends seriously and rather than just prohibiting its usage by financial professionals, is working to find for them to participate while still attempting to protect investors:
“The goal of this Notice is 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”
Read the whole thing but here are a couple of bullets summarizing the 10-pager (I’m not a lawyer — these shouldn’t be misconstrued as legal advice; I’m just reading through the document):
- guidance is product of Social Networking Task Force convened in September 2009 comprised of FINRA staff and industry reps
- firms are required to retain records of communication related to broker-dealer’s business
- FINRA will not back any one service provider that’s developing systems to do this
- Stock recommendations are subject to “suitability” rules. For example, it sounds like that if a rep recommended a stock and the social media site was open, the recommendation would have to be “suitable” to everyone who read it
- FINRA states that recommendations are clearly more complicated than other types of communications made over Facebook or Twitter and would need disclosures up the wazoo.
- Firms must supervise these activities
- Firms can create “template”-like communications that are pre-approved for broker use
- There’s some discussion as to what constitutes an ‘interactive electronic forum’ and wouldn’t require advance approval for extemporaneous remarks
- static websites are considered ‘advertisements’ and therefore, need approval
- Blogging, lifestreaming and tradestreaming, would be considered by FINRA to be an interactive electronic forum that does not require prior principal approval (but does require supervision)
- FINRA’s stance appears to be that blogging and social media must be supervised (though doesn’t require pre-approval). How the firm does so is being left primarily up to firm management. FINRA won’t endorse methodologies or technologies.
- Third party posts (like client comments on a firm member’s blog) are not considered by FINRA to require preapproval/content/filing
- paying a 3rd party (like a ghostwriter) to create and post content is different — it’s entangled with the firm and it’s as if the firm produced the content
- Disclaimers may be required on third party stuff
- firms are gently encouraged to monitor third-party content on firm websites as good samaritans and part of best practices
Read the whole regulatory notice (pdf). If you’re a registered rep, you’ll have to read it at some point, anyway.
Further Reading:
- Finra unveils guidelines for social media and blogging (InvestmentNews)
- Brokers’ Facebook, Twitter Posts Must Be Tracked by Employer (BusinessWeek)
- Finra bounces social media ball to your court (RockTheBoatMarketing)
[Hat tip: Stephanie Sammons]
