• Just released: Companion Guide to FINRA Social Networking Compliance

    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.

    For more details you can read the press release and download the guide now.

    Category: Compliance, eDiscovery, Financial Professionals, News, Social Middleware | Tags: , , , , , , , , , , , , .

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5 comments on “Just released: Companion Guide to FINRA Social Networking Compliance

  1. Theresa says:

    After reading the notice, I’m still not 100% sure that tweets would not be subject to pre-approval. Or are they leaving this up to the b/d to decide what exactly is “static” and what is “dynamic”?

    Also, at one point they say that a “wall” is “static.” So would wall posts on facebook need to be pre-approved?

    I’m interested to hear how other b/d’s are interpreting the rules.

  2. Chad Bockius says:

    Static content would be information like your Twitter profile details or your LinkedIn profile – content that is generally “static”. Wall posts or status update or tweets would all be considered dynamic content.

    So while pre-approval is not required under these new guidelines they do encourage firms to employ “risk-based principles” to determine the appropriate type of review. The options available are pre-approval or post-use review. I suspect most firms will opt for the post-use approach, doing an audit of archived content to ensure compliance.

  3. Karen says:

    Chad,
    Thanks for the post. Can you elaborate on the following: “FINRA clarified that posts by customers or other third parties are not governed by rule 2210.” What does this mean with regard to those posts?
    If a customer or third party not under the FI’s control posts something inaccurate, what action is the FI required to take, and within what time frame? Thanks.

  4. Chad Bockius says:

    Karen – let me expand on this. FINRA states the following in Notice 10-06 “As a general matter, FINRA does not treat posts by customers or other third parties as the firm’s communication with the public subject to Rule 2210. Thus, the prior principal approval, content and filing requirements of Rule 2210 do not apply to these posts. Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content.”

    So FI’s still need to be careful. For example, republishing a comment from a third-party, such as Retweeting, will likely be considered an endorsement by the firm. Additionally, “Favoriting” a post on Twitter or “Liking” a comment on Facebook could also be seen as an endorsement by the firm.

    Our recommendation to our clients is to educate reps about the dangers of endorsing a third party post and depending on your risk tolerance disable the ability to Favorite or Like a Tweet or comment.

    Retweeting is more complicated as a representative might be retweeting a perfectly acceptable message. In this situation you may want to adopt a policy and solution that provides pre-posting moderation for any retweeted messages.

  5. Adam says:

    Thanks for the companion guide. I too see nothing really new in the notice, but do appreciate the four or so iterations of what requires and does not require prior approval. I wrote up my take on the FINRA notice at this link: http://bit.ly/d84X1N and will be creating a follow-up summary after today’s call.

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