Today’s blog is authored by Joanna Belbey, Social Media and Compliance Specialist, Actiance. Follow Joanna @Belbey or connect with her on LinkedIn.
To continue with my prior blogs Belbey Blogs: FINRA Annual Conference 2013 – Part I of III (Suitability, Elisse Walter, Fraud) and Belbey Blogs: FINRA Annual Conference 2013 – Part II of III (Cyber Security, Using Social Media Tools), this is the third in a three part series that highlights the sessions that I attended:
FINRA Annual Conference (Part III of III)
Ask FINRA Senior Staff session
This is a popular session where the live and virtual audiences pose questions to a stage full of regulators. Topics are varied, but there was some discussion regarding social media.
Tom Selman, EVP FINRA Regulatory Policy, explained that some states have recently enacted legislation that limits how a firm may monitor employees’ personal use of social media. In response, FINRA is working with the states to explain the importance of allowing supervision of social media used for business purposes by regulated persons. As a result, a number of states have added an exemption for financial services. However, at the end of the day, if certain states prohibit firms from supervising regulated persons using social media, than employees in those states should be prohibited from using social media.
Social Media Considerations session
At this point, it’s been three years since FINRA has provided guidance of the use of social media by regulated persons. This panel provided an overview of regulatory guidance (FINRA Regulatory Notice 10-06, 11-39, 11-29) and then focused on four reoccurring questions impacting social media: Recordkeeping, Supervision, Third Party Content, and Training.
One topic included additional guidance on regulatory requirements for third party content. Joseph Price, SVP and Counsel FINRA Corporate Financing / Advertising Regulation stated that hyperlinks to a third party site require advance due diligence, as by drawing attention to third party content, you have “adopted” it and therefore record keeping and suitability requirements apply. (Editor’s Note: “Adoption” and “Engagement” is a SEC concept defining the relationship and associated responsibility when sharing content from a third party. Without going into legal details here, adoption is akin to using someone else’s content “as is” and “entanglement” refers to when you participated in the creation of the content.) Price continued, if your firm links to a specific article, you are only responsible for that article, not the entire site. (Editor’s Note: That being said, caution is advised. Best to stick with reputable websites.)
Debbi Corej, Specialist Leader, Deloitte& Touche LLP, noted that adoption of social media was still low and stressed the importance of developing plans in advance. Corey suggested that compliance departments draw the line between personal and professional usage for their employees and registered persons, develop processes, training, and attestations, include social media in annual meetings and focus on red flags.
Another topic was the handling of videos. FINRA gave an example that if a public appearance is recorded and the reused for marketing, it become sales literature and preapproval and supervision apply.
The panel also discussed endorsements on LinkedIn. It was suggested that as a best practice it is best to hide skills endorsements entirely to avoid the impression of a testimonial (Editor’s Note: Testimonials are prohibited for Investment Advisors and the difficult to justify for Registered Representatives. Broker Dealers typically outright prohibit or are very careful when allowing testimonials). As per Amy Sochard, Director FINRA Advertising Regulation, if you “groom” endorsements, you’ve “adopted” the ones you’ve left on the site. Alexander Gavis, Vice President and Associate General Counsel, Fidelity Investments added when it comes to social media “Use policy or technology, preferably both”.
Finally, Price reminded the audience that interpretation of the rules and regulations is based on the risk tolerance and culture of compliance at each firm, and concluded that “It’s ok for firms to have policies more conservative than the Guidance to protect their reputation”.
For those of you who are just getting started, here are some of the resources that were provided at this session:
FINRA Regulatory Notices:
FINRA Regulatory Notice 11-39, Guidance on Social Networking Communications (August 2011)
FINRA Regulatory Notice 10-06, Guidance on Blogs and Social Networking (January 2010)
Securities Exchange Act Release No. 69279 (April 2, 2013) (Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings)
IM Guidance Update: Filing Requirements for Certain Electronic Communications (March 2013)
Communications with the Public session
This session addressed some of the specific questions around the communications rules that became effective in February. As it was covered at other sessions, social media was mostly excluded. See Belbey Blog: New FINRA Communications Rule 2210 for more information. In general, the audience learned that leading communications volitions were failure to disclose a firm name, not fair or unbalanced communications, information that was misleading or exaggerated, material information in the footnotes and various SEC Rule 482 violations. The panel stated that supervision of communications should be flexible and risk-based and that proper training, surveillance, and follow-thru to correct issues was important. Specifically for public appearances, training, documentation and an occasional in-person spot check was suggested.
And finally, per FINRA Rule 2210, interactive social media communications were exempted from filing. See Belbey Blogs: Recent Guidnace from the SEC on Filing of Social Media for more details on that topic.
That’s it! I hope you found these highlights helpful and that I see you at FINRA Advertising Regulation Conference on October 10–11, 2013 in Washington DC.