FINRA has modified its approach to social media messages by financial advisors, proposing to narrow the categories of messages that require post-use filing. This should help both advisors and their firms embrace social media with less worry about compliance burdens.
This article from InvestmentNews explains the change:
While the article is right to emphasize how this change provides a better way forward, advisors can’t just “tweet away” without a second thought. The reality is that post-use filing was always about the content. And it’s still about the content, even though what FINRA is proposing will remove hurdles that have stymied some firms in their use of social media.
Proposed FINRA Changes for Social Media Postings
Here’s the crux of the proposed change, quoted from FINRA’s letter to the SEC of December 22, 2011:
FINRA recognizes that a member may face supervisory and operational difficulties if it is required to file an online forum post given that the member will be supervising such communications in the same manner as correspondence. Accordingly, FINRA is amending proposed FINRA Rule 2210(c)(7) to add a filing exclusion for retail communications that are posted on online interactive electronic forums. Nevertheless, members should be aware that this exemption does not apply to any filing requirement that may arise under either federal law or SEC Rules.
“Retail communication” is a key term here. According to FINRA,
Retail communication would include any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. ‘Retail investor’ would include any person other than an institutional investor, regardless of whether the person has an account with the member.
Even more important—and the reason to be careful about how you “tweet away”— is the last sentence from the first quote: “. . . this exemption does not apply to any filing requirement that may arise under either federal law or SEC Rules.” If the nature of what you’re discussing, via social media or otherwise, requires a filing, it will still require a filing.
The Medium and the Message: Two Compliance Checkpoints
We can think of firms and advisors as having two compliance “checkpoints” for any message they put out:
- Checkpoint 1: the medium. FINRA and other regulatory bodies have always treated different mediums differently. For instance, they don’t expect an advisor to digitally record an in-person conversation the same way they would archive an e-mail. Over the past few years, social media has presented a host of new challenges to regulators, since it often does not fit neatly with existing regulations that address other mediums. The new FINRA approach changes things up—a lot.
- Checkpoint 2: the message. A prospectus is a prospectus and must be treated like one. Some types of content will always require pre-review; some will always require post-review. The new FINRA approach doesn’t change that at all.
FINRA Is Not Handing Out a “Hall Pass”
For more insight on this, we asked for the opinion of Stephen Selby, Director of Regulatory Services at LIMRA. Here’s what he said:
FINRA content standards and filing requirements must not be confused. FINRA advertising filing requirements merely mandate that certain materials have to be reviewed by FINRA at a particular point in time. Regardless of FINRA filing requirements, content standards always apply. When using social media for “business as such,” clear, accurate and suitable information must be provided, conflicts of interest must be disclosed, and both sides of the story must be told about investments and investing strategies.
Keep in mind that advertising rules are not the whole story. FINRA also looks at public communications through a lens of “Standards of Commercial Honor and Principles of Trade,” which covers a whole range of issues. There have been recent proposed amendments to the new advertising regulations, which would potentially relax FINRA filing requirements for certain limited uses of social media. Any potential relaxation of filing requirements should not be confused with a hall pass.
It’s a real benefit for firms and advisors that FINRA is proposing these changes, and I’m sure it will reduce the headaches for the compliance officers we work with every day. They’ll still need to archive 100% of the social media messages that their advisors send out, but the filing burden will be lower.
But Selby hit the nail on the head: relaxed standards for certain types of messages don’t equate to a “hall pass” for all social media conversations. Firms should create strong, sensible policies for social media, train their advisors appropriately, and make sure that they have the right tools in place to ensure that they can still adequately supervise advisors’ social media use. Regardless of how the regulatory standards evolve, we’ll be here to help.