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New SEC guidance: Not all social media communications require filings with FINRA

On March 15th the Securities and Exchange Commission (SEC) through its Division of Investment Management issued a guidance to clarify the obligations of mutual funds and other investment companies to seek review of materials posted on their social media sites.
As a result of abundance of caution to be compliant with the filing requirements of Section 24(b) of the Investment Company Act of 1940 or Rule 497 under the Securities Act of 1933 and Financial Industry Regulatory Authority (“FINRA”) Rule 2210.1, many investment companies and mutual funds have been overly filing their social media communications with FINRA. Given such increase of filings, SEC clarifies the requirements by providing real life examples of the kinds of communications that funds, advisers and the public engage in and that would be subject to a requirement to file with FINRA, along with examples of communications that would not trigger a filing requirement.
Here are examples of social media communications that generally DO NOT NEED to be filed:

  • An incidental mention of a specific investment company or family of funds not related to a discussion of the investment merits of the fund.
  • The incidental use of the word “performance” in connection with a discussion of an investment company or family of funds, without specific mention of some or all of the elements of a fund’s return.
  • A factual introductory statement forwarding or including a hyperlink to a fund prospectus or to information that is filed pursuant to Section 24(b) or Rule 497.
  • An introductory statement not related to a discussion of the investment merits of a fund that forwards or includes a hyperlink to general financial and investment information such as discussions of basic investment concepts or commentaries on economic, political, or market conditions.
  • A response to an inquiry by a social media user that provides discrete factual information that is not related to a discussion of the investment merits of the fund. The response may direct the social media user to the fund prospectus or to access information filed with FINRA pursuant to Section 24(b) or Rule 497 or to contact the issuer through a different medium (e.g., phone, e-mail).

Here are some examples of social media communications that generally DO NEED to be filed:

  • A discussion of fund performance that provides specific mention of some or all of the elements of a fund’s return (e.g., 1, 5, and 10 year performance) or promotes a fund’s returns.
  • A communication initiated by the issuer that discusses the investment merits of the fund.

It is important that the regulatory authorities continue to protect the public from misleading financial advertisings, but as Hearsay Social encourages the value of social media communication, it is helpful to see authorities applying real life practicality to these different means of communication. We appreciate clarification from the SEC and will continue to work with our investment and mutual funds clients to manage their communications on social media with the appropriate balance, filing communications when appropriate.

Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.

Yasmin Zarabi

Yasmin is responsible for Hearsay's legal affairs including commercial, compliance, regulatory and privacy matters. She is a thought leader in compliance for financial services, has been published in industry press and speaks at events around the world.

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