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FINRA spot-checking firms' social media activities for compliance

On Monday June 17, FINRA posted a notice on their website describing targeted social media audits they will be performing with some member firms. In this letter, which was delivered to select member-organizations for spot-checking, FINRA requests details about the firm’s social media accounts, who manages those accounts, as well as information about the firm’s social media policy and process.
Notable in this announcement from FINRA is that they are specifically reviewing the activities of top producing registered representatives. For firms that have primarily focused on social media compliance at a brand level and attempted to block advisor use, it may be an added challenge to identify social pages and activity for these reps. Organizations are requested to report on the top performer’s activity from February 4, 2013 through May 4, 2013 as well as the sales and commissions that each rep brought in during that period.
Audits like these are a great example for why an enterprise social media platform can be a valuable tool for regulated firms. With a solution like Hearsay Social in place, organizations have most of the requested information and reports at their fingertips. With a few clicks of a mouse, respondents to this spot-check should be able to pull a report showing the social media assets, users, and activity for a firm. In addition to information about social media usage and policies, FINRA requests “an explanation of the measures that your firm has adopted to monitor compliance with the firm’s social media policies,” a process that is simple to demonstrate with Hearsay Social as a system for continuously monitoring activity, archiving, and supporting compliant social-media usage.
You can read the full FINRA notice here.
If you are a Hearsay Social customer, please contact your customer success representative for support in the spot-check process.

Understanding FINRA 2210, the latest financial communications rule that affects social media

As announced last June, new FINRA Communication Rules, including FINRA Rule 2210 (Communications with the Public), will take effect February 4, 2013. Hearsay Social participated in the recent FINRA Communication Rule seminar held at SIFMA’s headquarters in New York where industry and FINRA experts including, Tom Pappas, Vice President and Director Advertising Regulation, provide detailed guidance and clarifications on the changes to the Communications with the Public Rule.
Some of the key topics covered by FINRA and industry experts included:

  • Changes to Categories of Communications
  • Principal Approval Requirements
  • FINRA Filing Requirements
  • Content Standards

Categories of Communications

FINRA has reduced the six different categories of permissible communications to the public to three. The three new categories are now broader in scope and are as follows: (1) Retail Communication; (2) Institutional Communication; (3) and Correspondence. All communications must now be coded as one of the three categories.

  1. Retail Communication: Any communication (including electronic) to more than 25 “retail investors” within a 30 day time period. This includes the majority of social media activity. Communications made to less than 25 retail investors fall under the Correspondence category.
  2. Correspondence Communication: Any written (including electronic) communication distributed or made available to 25 or less “retail” investors within a 30 day time period. *An important change to note for both Retail and Correspondence Communication is that the communication limit includes both existing and prospective customers.
  3. Institutional Communication: Any written (including electronic) communication that is distributed or made available only to institutional investors. Institutional Communications should not be made available or distributed to Retail.

Summary FINRA Communication Category changes active as of February 4, 2013

Principal Approval Requirements

At the seminar, FINRA reaffirmed existing exceptions from the requirement for principal pre-approval of Retail Communications and added the following three categories:

  1. Retail Communication that is excluded from the definition of “research report” (see NASD Rule 2711(a)(9)(A))
  2. Any Retail Communication posted to an online interactive electronic forum including social media. There is no requirement for the pre-approval of social media interactive discussions such as tweets and interactive posts. However, static content such as a LinkedIn profile must be pre-approved. — Hearsay Social has and will continue to offer pre-review solutions for organizations seeking an extra level of security. As always, the supervision and retention/retrieval of all social media communications are standard.
  3. Any Retail Communication not making financial or investment recommendations or promoting a product or service of the firm.

FINRA Filing Requirements

There are new filing requirements for communications after first use: structured type products; collateralized mortgage obligations; and closed-end funds.

*Exclusions from filing: Independently prepared article reprints and reports; Retail Communications posted on an online interactive forum including social media (previously considered Public Appearance and now categorized as Retail Communications); and Retail communications that do not make any financial or investment recommendation or promote a product or service of the firm.

Content Standards

  • Public Appearances–Under the new rule, disclosure requirements associated with recommendations apply to public appearances as well other Retail Communications. In addition, the presenter has to have a reasonable basis for making the recommendation.  The presenter has to disclose any conflicts of interest at the time of the public appearance, including if they have a financial interest in the securities recommended.
  • Promissory Statements- Expressly Banned! Hearsay Social can assist with establishing a Lexicon of promissory words such as “Guarantee”; provide surveillance and infraction mediation; and provide for pre-approval static content to avoid this violation by a Broker-Dealer.
  • Testimonials- Broker-Dealers and Regulated Firms must disclose that a testimonial is “paid” if the compensation value is more than $100.

Social Media Applicability

Although these updates may change the way we talk about communications, the general best practice for compliance on social media remain the same.  It is important for regulated firm or broker dealer communications to be truthful, not misleading and reviewed and pre-approved* when communications are related to financial or investment recommendations or otherwise promote financial products or services (*interactive forum not required).

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.