This article was originally published in Forbes.
Financial advisors want to communicate the same way as their clients do, whether by Facebook, text or video. That presents challenges to the compliance departments of financial services firms who are responsible for keeping their firms compliant with various rules and regulations that impact communications to clients.
At a recent event, W. Hardy Callcott, Sidley Austin LLP asked Christopher Fernandes, Hearsay Systems, Robert Innes, Charles Schwab & Co., Inc., Thomas Selman, Financial Industry Regulatory Authority (FINRA), and Nubiaa Shabaka, Morgan Stanley & Co, LLC, the following question: “How can the compliance department support the business yet keep the film compliant?”
Here is a summary of some of the answers.
The Latest Social Media Guidance From FINRA
Social Media and Digital Communications: Regulatory Notice 17-18 is FINRA’s latest regulatory guidance for social media. Among other topics, guidance on native advertising, which is paid content that matches the tone of editorial content, was included for the first time. FINRA is seeing it more and more.
“It’s becoming part of the fabric of all the social media sites,” said Selman. Selman went on to explain that native advertising is permissible if the broker-dealer’s name is prominently displayed, the relationship between the broker-dealer and the entity mentioned is disclosed, and the advertising is fair, balanced and not misleading.
The Notice also clarified how firms should treat hyperlinked content. According to FINRA, when reps or firms hyperlink to specific articles, they have “adopted” that content. That means that firms are now responsible for that content, which means that advertising and supervision rules apply. Although ongoing hyperlinks (where there is no direct control) are not considered to be “adopted,” firms still need to make sure that hyperlinks do not include misleading or fraudulent information.
And finally, FINRA does not consider updates on social media about topics such as charity events or employment opportunities to be “business as such,” so record-keeping and supervisory requirements may not apply. FINRA’s goal is to allow technology to flourish, said Selman. Rather than take a prescriptive approach to social media that might stunt the growth of technology by firms trying to meet specific requirements, FINRA’s principle-based approach has allowed solutions to develop organically.
“Likes” On Facebook
Selman also discussed the regulatory impact of “likes” on Facebook. He explained that if associated persons “like” specific content, and people looking at their Facebook page can see those links and that content, FINRA considers that content to be “adopted” and therefore the firm is responsible for it.
However, if a Facebook page is “liked” in order to simply follow it, that’s the equivalent to a hyperlink over which you have no control (discussed above) and hence the firm hasn’t “adopted” it. Therefore, if firms allow the use of “likes” by their associated persons, there may be a distinction between “liking” specific content and “liking” a page itself.
Interestingly, Selman concluded that “although FINRA has certain principles, the firms often go well beyond our principles for these and other considerations. A lot of times, broker-dealers complain that we’re too tough, when it turns out that it’s their own compliance department.”
Challenges of Using Video Conferencing for Associated Persons
When financial advisors use video conferencing to “meet” with clients, many of the same regulatory issues that pertain to social media apply. These include requirements to archive and supervise business communications and to manage information security and privacy, according to Innes.
Innes explained that advisors and a small, but growing, number of clients like to use video for meetings. However, there are challenges of capturing and archiving native messaging communications within the platforms as well as protecting what clients and advisors share with each other. Specific risks include the inadvertent leaking of firm proprietary or client information when sharing the desktop. He suggested that advisors be trained specifically on how to conduct video meetings with clients. For example, advisors need to learn to spend time before their meetings to line up documents that they wish to share and minimize everything else.
Shabaka agreed. Procedures, ongoing training and attestations that the training is understood, are all important. She said that firms should consider adding disclosures for external parties, limiting the attendees of the meetings, and making sure that advisors are licensed to sell products in the states that they are having conversations. From an information security and privacy perspective, she suggested that firms think through who can see the information that the advisor is sharing. Consider instituting processes to report incidents of unauthorized access to certain personal information via video.
Firms should also evaluate their processes around supervision and monitoring to make sure people are following the policies at the firm. Think through all the details in advance to mitigate risks of leaking data when using video conferencing, concluded Shabake.
From a regulatory perspective, Selman added that FINRA would treat an ongoing video as a public appearance under the rules, which means pre-review of the content is not required. Using Facebook Live as an example, once the video is complete, it appears on the person’s feed and would be treated like an interactive communication, which doesn’t require any kind of pre-approval.
However, the video would require some type of risk-based review to make sure that it meets FINRA’s advertising standards. As a reminder, firms may not use networks where the video immediately disappears or disappears soon after it’s made, if business records can’t be captured, supervised or maintained.
Fernandes concluded the session by reminding firms that when social media and video communications are managed by multiple departments, firms need to make sure there’s synergy across the organization about the rules and responsibilities. As video becomes a larger and more important component of business communications going forward, the rules of conduct are going to become more and more important over time.