Yesterday FINRA surprised everyone by releasing Regulatory Notice 10-06, titled “Social Media Web Sites – Guidance on Blogs and Social Networking Web Sites.” Since September of 2009, FINRA created and has been working with a Social Networking Task Force to discuss “how firms and registered representatives could use social sites for legitimate business purposes in a manner that ensures investor protection.” One of the key goals of this task force, and this new notice, is to interpret the FINRA rules with the knowledge of the changing landscape of social media to allow firms to communicate in this channel while still protecting investors.
For the most part there is nothing new in the Notice. FINRA reinforces their position on long standing electronic communication guidelines reiterating that those rules apply exactly as stated for social networking sites such as Facebook, Twitter and LinkedIn. For example:
- Recordkeeping – firms ARE required to retain social media records that a related to a broker-dealer’s business.
- Supervision – firms MUST monitor the extent to which employees are complying with policies.
- Pre-approval – firms MUST define their policy for pre or post approval depending on their risk profile.
While reinforcing some of the core guidelines there were a few key clarifications that make adopting social networks a little bit easier in the financial services arena. For example:
- Static vs. Dynamic content – a registered principle is still required to pre-approve any static content such as a profile or Twitter background details. Dynamic content such as wall posts constitute an interactive electronic forum and therefore firms do not have to have a registered principal approve these communications prior to use.
- Third-party posts – FINRA clarified that posts by customers or other third parties are not governed by rule 2210. However, if a firm endorses one of these posts they may become attributable to the firm.
While this update is a very positive step for firms there is still the open question of how to address the compliance requirements in an automated fashion. Additionally, FINRA does not address every fine grain issue you will run into on social networks that could trigger a compliance violation. For example, does Favoriting a tweet trigger rule 2210 because of an endorsement? And more importantly how will protect your firm from these possible violations?
To help firms accelerate their adoption of social networking tools Socialware has released the Companion Guide to FINRA/SEC Social Networking Compliance. This guide provides a detailed analysis of social networks and how their capabilities can trigger regulatory rules. Furthermore, it provides a clear checklist of requirements to evaluate social networking compliance solutions.