Compliance January 25, 2010
FINRA Issues Guidance about Social Networking
Broker/dealers and their reps confused about regulations regarding social networking might now have some answers.
Reported by Ellie Behling
The Financial Industry Regulatory Authority (FINRA) today issued guidance to securities firms and brokers about the use of social networking Web sites—such as Facebook, Twitter, LinkedIn, and blogs—to communicate with the public. FINRA said the new notice is in response to “the expressed need for guidance explaining how FINRA rules governing communications with the public, recordkeeping and supervision apply to social networking sites.”
Regulatory Notice 10-06, which is presented in Q&A format, clarifies the responsibilities of firms to supervise the use of social networking sites to ensure that investment recommendations are “suitable” and customers are not misled, FINRA said. The Notice also addresses necessary recordkeeping, supervision, and other responsibilities of a firm.
In the notice, FINRA emphasizes that each firm must develop its own policies and procedures to supervise personnel who use social networking sites for business. It also addresses in what circumstances it is permissible to recommend specific investment products. “As a best practice, firms should consider prohibiting all interactive electronic communications that recommend a specific investment product and any link to such a recommendation unless a registered principal has previously approved the content,” according to the notice.
FINRA reiterated that firms must retain records of social media communications related to their business. Some technology providers are developing systems that are intended to enable firms to retain records of communications made through social networking sites (see “Social Networking Site for Advisers Say It Is FINRA-Compliant”). For instance, advisers can find applications that will capture and save tweets from Twitter. However, FINRA said that it does not endorse any particular technology to keep such records, “nor are we certain that adequate technology currently exists.”
Last year FINRA produced a podcast about social networking rules, which had been broadly encompassed in its Internet communication rules. However, the independent regulator decided that brokers needed more specific guidance. In the fall, FINRA announced it had formed a task force to further examine social networking regulations (see “Think before You Tweet”).
“Social networking sites and blogs raise new regulatory challenges, particularly in the areas of supervision, advertising and books and records requirements,” said FINRA Chairman and CEO Rick Ketchum, in a news release. “Our goal in issuing this notice is to ensure that firms and brokers use social networking sites in an appropriate manner.”
Regulatory Notice 10-06, which is presented in Q&A format, clarifies the responsibilities of firms to supervise the use of social networking sites to ensure that investment recommendations are “suitable” and customers are not misled, FINRA said. The Notice also addresses necessary recordkeeping, supervision, and other responsibilities of a firm.
In the notice, FINRA emphasizes that each firm must develop its own policies and procedures to supervise personnel who use social networking sites for business. It also addresses in what circumstances it is permissible to recommend specific investment products. “As a best practice, firms should consider prohibiting all interactive electronic communications that recommend a specific investment product and any link to such a recommendation unless a registered principal has previously approved the content,” according to the notice.
FINRA reiterated that firms must retain records of social media communications related to their business. Some technology providers are developing systems that are intended to enable firms to retain records of communications made through social networking sites (see “Social Networking Site for Advisers Say It Is FINRA-Compliant”). For instance, advisers can find applications that will capture and save tweets from Twitter. However, FINRA said that it does not endorse any particular technology to keep such records, “nor are we certain that adequate technology currently exists.”
Last year FINRA produced a podcast about social networking rules, which had been broadly encompassed in its Internet communication rules. However, the independent regulator decided that brokers needed more specific guidance. In the fall, FINRA announced it had formed a task force to further examine social networking regulations (see “Think before You Tweet”).
“Social networking sites and blogs raise new regulatory challenges, particularly in the areas of supervision, advertising and books and records requirements,” said FINRA Chairman and CEO Rick Ketchum, in a news release. “Our goal in issuing this notice is to ensure that firms and brokers use social networking sites in an appropriate manner.”