Archive for category Compliance
The 2013 FINRA Annual Conference just wrapped up yesterday and judging by the packed house at the two social media-related sessions, the topic is still a hot one. Much like the last few years, the industry is grappling with what to do with social. “To allow or not to allow?” was clearly on the minds of everyone in the room.
Somewhat surprisingly, there’s still a lot of folks who don’t allow any access to social media (I’d ballpark it at around 1/3 of the people). Then, you’ve got another third that only allow limited or selective access (e.g., only business card-type info on LinkedIn). But for even these guys, they admitted they’d have to “release the hounds” eventually, with “eventually” being sooner rather than later.
FINRA itself is becoming more educated on social networking trends and capabilities and responding accordingly. Just a few months ago, Rule 2210 (Communications with the Public) went into effect. Realizing that the power and allure of social relies on the dynamic, interactive nature of the medium, Rule 2210 specifically exempts from pre-approve things like Facebook posts and tweets that don’t make any financial or investment recommendation or otherwise promote a product or service of the firm.
Some may say the financial industry is moving too slowly, but hey, baby steps are better than no steps at all. After watching the industry get annihilated five years ago, a little bit of caution and conservatism perhaps is not a bad thing. The main point is that the industry realizes social media is not a flash in the pan and that it’s here to stay. The industry is embracing it, just at its own pace.
Which means it’s a wonderful opportunity for vendors like Actiance to help these firms meet their regulatory obligations. Actiance’s sweet spot is financial services and has been for over 12 years. We relish the role of advising the “newbies” on how to leverage social and to do so compliantly. We’ve been to a bunch of these FINRA events so we know what keeps compliance officers up at night and what it takes to allay those fears.
Sometimes you need that lil bit of hand-holding to cross the finish line. No shame in that. In this day and age of global interdependencies, going it alone is more difficult than ever before. Maybe that’s why we friend, connect, and follow. Social makes looking for new business opportunities (or that specialty bacon) much easier.
The buzz in the enterprise is Big Data. Pick up any publication covering technology or business these days and you will see articles about the proliferation of Big Data; how it happens and how it will impact our lives. Certainly, there is a ton of data flooding in, offering tremendous opportunity to predict new trends that can drive our business in exciting ways. But there are two important steps in the harnessing of Big Data to achieve its potential. First you have capture and store the data; second you need to analyze the data. Once you have visibility you can ‘listen’ to trends generated by your customers and marketplace.
But, while most companies are listening to what customers are saying, they’re often not listening to what their employees are saying.
The old adage “the CEO is the last to know” no longer has to hold true. Big Data can help you learn about your employees’ experiences as much as the customer experience. If we can leverage Big Data to create an experience for the customer that exceeds their expectations and results in higher satisfaction, can we not use Big Data to achieve the same with our employees?
With Big Data we can change how we engage our employees. We can understand the trending themes, the sentiment, who the key “connectors” and subject matter experts are, and even the high risk areas. We can safely project that this will result in:
- Higher job satisfaction
- A more engaged, enthusiastic workforce
- Longer employee retention
- Better productivity
Not unlike the customer experience we can create with insights from Big Data, we can create a better employee experience that results in a positive, transparent and more productive work environment. All of which gives us a competitive edge.
Isn’t that really the potential of Big Data for the enterprise?
Today’s blog is from Joanna Belbey, Social Media and Compliance Specialist at Actiance.
This month, the Division of Investment Management of the Securities and Exchange Commission issued the first in a series of “IM Guidance Updates” to clarify its positions on emerging legal issues. The first topic was social media.
Financial services firms are cautious by nature, and its both our experience and no surprise, that firms are taking a very conservative approach and are filing a huge amount of social media content with FINRA. The SEC is calling out that this may be unnecessary in a number of cases.
First some background. To ensure that communications from financial institutions are suitable, fair and balanced, the FINRA Advertising Regulation Department reviews the content of more than 100,000 communications every year. Some communications are submitted as required by FINRA rules, others are submitted voluntarily. Some are filed in advance, others within 10 days of publication. However in FINRA Rule 2210(c)(7)(M), effective February 2013, retail communications posted on an “online interactive electronic forum that is contained on a social media website” are specifically excluded from these filing requirements.
However, as firms have other filing requirements aside from FINRA, such as Section 24(b) of the Investment Company Act of 1940 (“1940 Act”) or Rule 497 under the Securities Act of 1933 (“1933 Act”), SEC has seen fit to provide guidance on what should and should not be filed.
As the SEC states “Whether a communication need be filed depends on the content, context, and presentation of the particular communication”. So nothing changes there. This is simply reiteration. But now the SEC goes a little further. The more specific, the more likely it needs to be filed. And as an aside, whether the communications are filed or not, they still need to captured, supervised, archived, made e-discoverable like any other written communication for “business as such”.
The SEC provided some examples for clarity:
Do Not File
- Simple mention of a specific investment company or family of funds without discussion of merits
- Mention of word “performance” in connection with a specific investment company or family of funds without mention of returns
- Factual introductory statement / hyperlink to fund prospectus (ie, report available here)
- An introductory statement not related to investment merits of a fund that includes hyperlink to general information
- Response to an inquiry via social media that provides factual information and does not include merits of the fund
File (to meet requirements of Section 24(b) or Rule 482):
- Discussion of fund performance that provides specific mention of fund’s returns
- Issuer communications that discuss merits of an investment fund
The regulators continue to reinforce what we know to be best practices of social media. Pitching financial products, and discussing specific performance and returns is unwelcome on social media and may require pre-approval by a registered principal of the firm as well as filing requirements.
A better approach?
Provide compelling content, not sales pitches. Offer information that is informative, entertaining, and worth sharing. In a compliance-constrained industry like financial services, delivering compelling content can be challenging, but it’s by no means impossible.
The first step is to inventory your existing content to see what can be leveraged for social media. Start with pre-approved content that has been reviewed by the company’s compliance team for both corporate governance and regulatory compliance. Use this content to develop a library of interesting insights on investment strategies, wealth management, saving for college or retirement, and similar topics. These articles can provide a foundation for social media newcomers who are looking to start building their online networks.
This Spring is a great time to get started!
Other information you may find helpful:
Belbey Blogs: New FINRA Communications Rule 2210
Division of Investment Management of the Securities and Exchange Commission Issues Guidance Update on Social Media Filings by Investment Companies
IM Guidance Update March 2013
FINRA Rule 2210
Regulatory Notice 12-29 Communications with the Public
Regulatory Notice 10-06, Social Media Web Sites: Guidance on Blogs and Social Networking Web Sites (January 2010)
Guide to the Web for Registered Representatives
FINRA: RCA – March 1999 – Ask the Analust – Electronic Communications
We’ve all heard this countless times, but we usually yawn and consider it an afterthought. But, for those folks working in regulated industries, these words ring true. In the UK in particular, there are strict guidelines on the recording of voice calls. For instance, the Financial Services Authority’s Policy Statement 08/1 specifically requires firms to record all relevant telephone conversations and electronic communications. And even if the requirement does not explicitly single out voice recordings, it is certainly implied in the “electronic communications” language adopted by the SEC, FINRA, the FRCP, and others.
Additionally, even though there’s a marked trend of moving away from legacy PBX systems towards VoIP systems, this doesn’t make the recording requirement go away. If anything, it highlights the importance of having to record conversations in whatever format they take place in.
These days, communications could be over unified communications platforms like Microsoft Lync, social media, instant messaging, mobile phones, or even the good ol’ landline. It’s just that the rapid adoption of Microsoft Lync over the last few years has shined the spotlight on voice calls through this specific platform.
Lync adoption in general has been spurred by the increasing demand to cut costs and enhance productivity in the workplace. PBX systems are more expensive and difficult to manage, which only serves to expedite the transition to IP-based systems like Lync. Easier expansion and greater flexibility are also prompting organizations to switch to Lync.
But oftentimes, before organizations can even deploy Lync, they need to ensure they’ve got a management solution in place to provide the compliance and security capabilities that’ll give them the peace of mind they need before deploying Lync. That’s because native Lync functionality is insufficient to keep companies from fully adhering to the governance requirements they’re subject to.
Actiance Vantage removes these roadblocks by making it possible for firms to securely record Lync Voice calls in accordance with applicable compliance requirements. All key metadata is captured; data integrity is verified; and there’s integration with a wide range of archiving platforms. Throw in support for other Microsoft applications (SharePoint, Skype, OCS) and non-Microsoft applications (Jive, IBM Connections, Google Talk, Yahoo! Messenger, Bloomberg, etc.) and it’s easy to see why Vantage is considered the marquee governance solution for the broadest range of communication channels.
By taking care of the governance aspects, Actiance enables organizations to focus on their business.
On February 4, 2013, as result of the systematic harmonization of NASD, NYSE and FINRA rules, FINRA Communications with the Rule 2210, went into effect. I wanted to learn more, so I attended the SIFMA Compliance and Legal Society, New FINRA Communications Seminar last week. It was an educational panel that include Kevin Zambrowicz (SIFMA), John Lajiness (Fidelity), Tom Pappas (FINRA), Holly Smith (Sutherland Asbill & Brennam) and Edward Sullivan (UBS).
The panel discussed that FINRA Rule 2210 brings some significant changes to the communications rule and that firms were expected to update their Written Supervisory Procedures accordingly. However, the rule was announced back in June, so firms have had plenty of time to get ready.
In fact, as Edward Sullivan, Head of Field Compliance at UBS, told the audience, his firm took the new rule as an opportunity to take a fresh look at the communications policies at his firm and make enhancements where appropriate.
So, how does FINRA Rule 2210 impact social media?
First some background. Back when FINRA issued Regulatory Notices 10-06 and 11-39, there were six major categories of communications under the existing NASD Rule 2210.The former six categories (advertisements, sales literature, correspondence, institutional sales material, independently prepared reprints, and public appearances) have now been replaced by three: Correspondence, Retail Communications, and Institutional Communications.
Let’s take a look at the two that impact social media:
Correspondence includes any type of written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Like email, these communications do not require pre-approval, but, firms need to capture, retain and make business communications e-discoverable as well as demonstrate that they are supervising communications to meet suitability requirements. An example from social media might include an InMail on LinkedIn, a Message on Facebook, or a Direct Message on Twitter.
Retail communication includes any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. A “Retail investor” includes any person other than an institutional investor, regardless of whether the person has an account with the firm. Communications that formerly qualified as advertisements and sales literature generally now fall under the definition of “retail communication.” These communications require pre-approval from a principal of the firm, plus all the record keeping and suitability rules apply. However, the rules specifically exempted pre-review any retail communication that:
- is posted on an online interactive electronic forum
- does not make any financial or investment recommendation or otherwise promote a product or service of the firm.
FINRA recognizes that due to the real time nature of social media, pre-review would inhibit interactive communications. Examples from social media include posts such as LinkedIn Updates, Facebook Status Updates, and Tweets on Twitter.
But, what about static portions of social media like profiles and links to content? Tom Pappas, Thomas A. Pappas, Vice President & Director, Advertising Regulation, FINRA, reiterated that the new rule codified existing guidance from 10-06 and 11-39 and that static portions of social media would still require pre-review unless they are exempted as above. In other words, if static content promotes a product or service, it requires pre-approval.
So, will this significantly change processes around social media? Probably not. As I mentioned in my blog, Belbey Blogs: What Are Other Firms Doing?, we have found that firms tend to pilot social media with pre-approval of all initial posts (such as tweets) and keep tight controls in place. Registered persons typically don’t have much latitude. However, once they begin to trust technology to safeguard their firms’ reputation and stay compliant, firms often begin to allow their reps to personalize content to varying degrees.
It just takes time. And some successes to accelerate the process.
For more information, see: