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UK's FCA Sets New Rules on Social Media Use

shutterstock_79159834The Financial Conduct Authority (FCA), the UK’s regulatory body, recognizes the importance of managing social media in the financial services industry, and has recently published its guidance on using social media for financial promotions. In the UK alone, 58% of financial advisors say they use social media to actively engage with their clients and prospects, compared to 75% of financial advisors in the US sector. According to a social media survey by PAM Insight last year, compliance and regulatory concerns still present one of the biggest barriers to social media adoption among UK advisors. Yet, only a quarter of UK-based financial firms have introduced formal policies setting out social media best practices.
In the new guidance issued on March 13, 2015, the FCA outlines ways in which businesses can use social media for financial promotions in a way that is “clear, fair and not misleading.” The FCA’s acknowledgement that social media can be a significant value to firms in the way people communicate is a testament to the robust financial markets in the UK, the innovative nature of the companies and people, and the active participation by industry regulators.
Here are some important take-aways from the guidance:
1) ‘Click through approach’ and standalone compliance: Consumers’ tweets are standalone promotions and must comply separately with FCA rules, as well as being “clear, fair and not misleading.” This is also the case when tweets are used to link through to a website, known as the ‘click-through approach.’ Firms can apply this rule by having adequate systems in place such that every communication is monitored and supervised. For example, legal disclaimers can be given for each statement that is a financial promotion. These rules apply to all members of the financial firm that communicate “in the course of the business” and not just advisors or agents.
2) Distinguishing between personal and business use: Whether a social media post is compliant or not depends on the content that is being use for professional use, e.g. “in the course of business,” as opposed to personal use. Here are some practical tips for ensuring these requirements are met:

  1. Distinguish between the firm’s own social media sites, and sites for individual officers or employees at the firm. For the firm’s own sites, there should be a clearly defined policy about who is permitted to post material, and with what level of review (before or after the postings).
  2. Some firms only have firm-level social media sites, and prohibit individuals at the firm from making business-related postings on their own social media sites, although this approach is becoming less common.
  3. Firms should clearly distinguish between allowing for their advisors to use business-related sites for work versus their personal sites. For personal, non-business-related sites, advisors typically bar the individual from discussing business on those sites.
  4. Firms should monitor and retain content only on the individual’s business-related sites.

3) Responsibility when sharing or forwarding communications: Unlike other channels, “Retweets,” “likes,” and “shares” can take on a different meaning than the original communication on social media. The FCA declared that if a consumer shares or forwards content via sites like Facebook, LinkedIn, and Twitter, the firm is only responsible for the original communication. In this case, businesses should pre-review or post-monitor the appropriateness of any content. If, on the other hand, the firm is sharing a post that did not originate from the firm AND if the comment endorses the firm or their advisors’ posts that have regulated financial product or service, then sharing or forwarding by the firm will constitute a promotion by the firm. In this case, the firm is responsible for the retweet. The only exception to this rule is where the content is related to “customer service” which is an area that does not fall within the jurisdiction of the FCA.
4) Sign-off for digital communications: The FCA maintains, as it did in its earlier release, that firms have an “adequate system” in place to sign off on all digital media communications which it considers as best practice for managing business risk. Therefore it is important to think through the resource implications of social media. If a firm anticipates having multiple individuals with business-related social media activity, then the firm should make sure that it has adequate supervisory systems and compliance resources to monitor that activity. Firms should also think through crisis scenarios – have a plan in advance for how it would respond in social media in the event of an unexpected negative event/story.
5) Record keeping: To protect a company from legal, regulatory and reputational risk, a key requirement should be that the firm has the ability to retain and retrieve its social media communications, including both content from the advisor or agents, and the responses to that content. While the FCA does not provide specifics on length of time records should be retained, generally it is good practice (as is the case in US) to have a three to five-year retention period for communications with clients and potential clients. Third party technology solutions, such as Hearsay Social, allow firms to archive social media content, and to escalate content to supervisors or compliance for review. Further, with cybersecurity being in the forefront of financial services concerns, it is important to include social media in the firm’s information security program.
The key takeaway for businesses from this recent guidance is that the FCA is committed to providing clear and practical recommendations on how this new channel can be used in businesses to promote products and services in a way that is “clear, fair and not misleading.” However, there remain some challenges, the first of which is how these regulations can keep pace with evolving technology to ensure that guidelines continue to be practical and flexible for businesses. As firms scale and roll out their social media programs to their advisors and begin adhering to these guidelines through training, process, and social media compliant technology, the FCA may periodically revisit these new guidelines to adapt to this changing landscape.
To assist with this challenge and in the interest of creating an on-going dialogue within the industry and with the regulators, Hearsay Social is partnering with the Financial Services Forum to create an industry working group. The working group will provide continual ideas, practical tips and best practices for implementing social media channels in a compliant manner. If you are interested in contributing to how social media should be regulated, in UK or in continental Europe, we are interested in hearing from you. Please contact us at EUcompliance@hearsaysocial.com
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Social media compliance: What investment advisors need to know

Ed. note: The following post, authored by Yasmin Zarabi  (vice president, legal & compliance, Hearsay Social), originally appeared in Financial Planning.

FinancialPlanning_logoAs social media grows increasingly popular among RIAs, there are still questions regarding testimonials, endorsements and recommendations on social sites. The SEC’s recent guidance allowed for certain use of third-party commentary on social media that would not violate the “testimonial rule.”

Here’s what investment advisors need to know now.

Underlying rule

Since the 1940s, the SEC has forbidden RIAs from promoting client endorsements or testimonials in anything that constitutes an “advertisement.” Rule 206(4)-1 under the SEC Investment Advisers Act of 1940 prohibits an RIA from publishing, circulating or distributing any advertisement which refers — directly or indirectly — to any testimonial of any kind concerning the RIA or any advice, analysis, report or other service rendered by the investment advisor.
But in the digital age, clients can effortlessly use social media to endorse and recommend their advisors with just a few clicks. The SEC has issued a couple of clarifications related to social media. Back in January 2012, it published a National Examination Risk Alert on Investment Adviser Use of Social Media, outlining its concerns about RIAs’ use of social media and describing how clients can provide recommendations and endorsements. More recently, in March 2014, the SEC issued Guidance No. 2014-4 — Guidance on the Testimonial Rule and Social Media — providing further clarity on investment’s advisors’ use of third party commentary on social media.
How could a third-party comment or social media “action” be viewed as a “testimonial” on social media and therefore prohibited? One thing is clear: In its guidance, the SEC says an investment advisor should not invite its clients to post commentary directly on the investment advisor’s own social media site or page.

But what uses of third-party commentary would be permissible by the testimonial rule?

mzl.hcndxsjsLinkedIn recommendations & endorsements

LinkedIn endorsements and independent recommendations about the advisor’s skills should be avoided. An endorsement can occur in two ways: A client could endorse an advisor for a skill that is already listed on his or her profile or a client could initiate an endorsement for a new skill that does not already appear on the advisor’s profile.
To avoid the first scenario, advisors should select “No” for the “I want to be endorsed” feature under the “Skills and Expertise” section on their LinkedIn profile to turn off the feature that allows clients (other LinkedIn users) to “endorse” their skills. In addition, if a connection attempts to add a new skill to the advisor’s profile, the advisor should reject the endorsement to avoid violating the testimonial rule under the Advisers Act.
Recommendations on LinkedIn are completely separate from endorsements. They are free-form written opinions of one’s professional skills, accomplishments or experience. A client can choose to recommend an advisor or an advisor could request such a recommendation.
If advisors receive unsolicited recommendations, they have the ability to review and approve the recommendation before it appears publicly on their profile. Advisors should not accept or request any recommendations on LinkedIn. Advisors may also want to add a preemptive note to the Summary section of their profiles to say up front that they will not accept recommendations or endorsements.

Tweets

Advisors should avoid retweeting any tweet from either a securities research analyst or a client who is providing a testimonial about the advisor’s performance or a product or service of its firm.

LikeSocial media “likes”

Many firms also worry about the interpretation of a like on Facebook or LinkedIn, or having viewers choose to “favorite” a tweet. Likes can mean many things: For example, a like from a third party may simply indicate that a visitor enjoyed an article that was shared or appreciates the artwork on a page.
Much depends on context: The 2012 SEC Risk Alert was careful to state that interpretation of a like as a testimonial is based on the facts and circumstances. A like that an advisor solicits as an indication of a client’s experience with the firm may be construed as a testimonial. However, a like on a photo of an advisor’s new baby may not.

Links to third-party sites

The March 2014 SEC guidance also clarifies how advisors can use third-party commentary on social media. According to the guidance, advisors should not link to commentary on a third-party social media site unless they can demonstrate all three of these:

  • That the advisor has no ability to affect which public commentary is included or how the commentary is presented on the independent social media site.
  • That the commentator’s ability to comment is not restricted.
  • That all comments, both good and bad, can be viewed publicly.

Takeaway: rules for advisors

Financial regulations only prohibit the use of testimonials or endorsements that are related to financial services and the ability to manage money. But advisors can avoid violations of the testimonial rule by following these guidelines:

  • Do not list any skills on your LinkedIn profile.
  • Turn the LinkedIn endorsements feature off.
  • Do not accept any LinkedIn endorsements initiated by a third party.
  • Include a disclaimer on your LinkedIn profile instructing third parties not to endorse.
  • Only share links to independent third-party social media sites on which you have no influence on the third-party commentary and you are not materially entangled with the third-party social media site.
  • Do not cherry-pick favorable client testimonials or endorsements  on your social media pages or any advertisement. If you allow testimonials, you have to show the good and the bad commentary, and not just the favorable comments.

In general, advisors should avoid soliciting client feedback in a way that may frame a Facebook like or a third-party post as a testimonial.
And as a best practice to limit their risks, advisors should prominently display language on their LinkedIn and Facebook profiles indicating that they (and their firms) are not responsible for and do not encourage third parties to post anything on their behalf.
Given that the financial regulations relating to social media are relatively new, and social media platforms continue to evolve in their uses and the ability to effect controls, firms should consider the guidance in light of their organization’s policies for their advisors.

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