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FCA proposes new social media rules

Twitter_MagnifyingGlass_FCA_Guidance

In new guidance consultation issued August 6 2014, the Financial Conduct Authority (FCA) aims to clarify the regulator’s approach to social media (prior guidance was published in 2013) and provide guidance for how firms should handle financial promotions through social media communications.

“Our overall approach is that financial promotions, whether on social media or traditional media, should be fair, clear and not misleading,” said Clive Adamson, Director of Supervision at the FCA said. “We have had extensive industry engagement on this issue and we believe our guidance is a sensible approach that doesn’t affect industry’s ability to innovate using new forms of media.”

“We recognise social media are constantly evolving,” said Adamson, “We, therefore, welcome feedback to today’s consultation and look forward to continuing the discussion with industry.”

Standalone compliance is also highlighted in the guidance. Each communication should be reviewed and comply on its own. For example, legal disclaimers should 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.

According to the proposed guidance, firms need to have adequate systems in place to review, approve and supervise financial promotions. In addition, firms should be keeping a record of communications on social media, and they cannot rely on digital media channels (the social networks) to maintain the records because they do not maintain complete records and are often subject to change. To assure compliance, firms can leverage third-party tools, such as a solution like Hearsay Social, to keep records of social media communications.

The guidance addresses challenges with the limited characters (140) available on Twitter, but indicates that the limited space provides no excuse for firms to not make it clear when something is a promotion. In fact, the FCA suggests one way that firms might indicate promotional content is by simply including the hashtag “#ad” in any promotional tweets. The guidance also suggests that firms consider image advertising, however, it advises that firms should not rely on just the image to indicate whether a tweet or message is promotional.
Firms can also address requirements by just tweeting a link to a website with a financial promotion clearly indicated. For example, “To see our current mortgage offers, go to www.fakemortgages.co.uk.”
Overall, it is good to see the regulator addressing the unique nature of social media communications, as it requires different regulatory requirements than more traditional online media. The proposed guidance, “GC14/6 Social media and customer communications: The FCA’s supervisory approach to financial promotions in social media” can be found here.
Comments on to the proposed guidance can be submitted before November 6, 2014 via email to Richard.Lawes@fca.org.uk.
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.
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New Twitter profiles are coming: what you need to know

Your profile may not have changed yet, but Twitter announced this week that new profiles are rolling out soon. According to Twitter, the new look “will make it even easier to express yourself.” Specifically, the change features more visual elements, such as a best tweets section and an image library, which will help professionals more creatively position their brand and tell their story.

FLOTUS Twitter page

So far, the new profile has only been made available to some influencers and celebrities. As you can see in the First Lady’s page above, the new profile is anchored by a larger profile photo on the left. Additionally, the text size for tweets varies depending on their popularity.

Another visual element that has changed is the header image, which is now a bar across the top of the screen similar to Facebook and Google+ pages. This is different from your background image, and current Twitter users will likely want to update this image to optimize their use of this new visual layout.

FLOTUS Twitter media

The new profile layout also changes how viewers can see multimedia tweets you’ve shared.  Now the tweet and related photo are always coupled together, instead of a separate library of photos and video that was linked to in the lefthand column of the old profiles. This could be a welcome change to brands and marketers on Twitter because it keeps the context of a photo tied to the actual image. This change also makes it easier to retweet or share an image-based post.

Furthermore, instead of displaying a snapshot view of another Twitter user when you click on their name in the stream, clicking on another user now sends you directly to that profile page.

What are the compliance implications?

Although the looks are changing, the basic mechanics are all still the same. For financial services organizations supervising and archiving Twitter activity through a software partner that has API access, such as Hearsay Social, compliance coverage should not change.

However, changes to the size of photos on the profile page and how they’re displayed could affect users and is something firms should get ahead of. Here are two things to consider:

  1. If your organization is using the background photo to share disclaimer information, this new layout may make that information less visible.
  2. Users are going to want to change the images on their profiles to fit the new look. If your organization limits what users can have on their profiles, it’s important that you prepare approved header images that match this new size and layout. (A good size for the header is 1500px width by 500px height, while new Twitter profile pics should be 400×400, according to Social News Daily.)

At Hearsay Social, we’re excited by this change and think it will give our users the opportunity to create even more engaging profiles. I look forward to the creative ways people take advantage of the new features. As always, we’ll keep you informed as we learn more and develop best practices for this new look.

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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.

Social media compliance updates from FINRA’s Advertising Regulation Conference

As announced last June, new FINRA Communication Rules, including FINRA Rule 2210 (Communications with the Public), have been approved by the SEC and will take effect February 4, 2013.  These rules, and related regulatory notices, provide important guidance for firms on blogs and social networking websites.
At the most recent FINRA Advertising Regulation Conference in Washington DC, Hearsay Social heard FINRA and industry experts provide useful updates and clarifications on Rule 2210 and social media compliance.
Some of the key topics covered include:

  • Pre-review requirements: Does a registered representative’s first social media post or their first interaction in a new conversation need to be pre-reviewed by their firm?
  • Deleting third-party comments: If a firm deletes third-party comments from its social media site, does that imply that it is has endorsed the remaining comments?
  • Third-party content: What are a firm’s obligations when a registered representative tweets a link from a business social media site to an article on an independent, third-party website?

Pre-review requirements

Across the financial services industry there has been an open question about whether dynamic content needs to be pre-reviewed. Reaffirming Notice 2210 at the conference, FINRA said there is no requirement for the pre-review of social media interactions.
The SEC-approved “Communications Rules” lay out an exception to the preapproval requirement for social media: firms and reps will not need to have a principal approve the content of a status update, post, or tweet prior to it being posted on an online interactive forum such as a LinkedIn group, Twitter feed, or Facebook page. Additionally, tweets and posts are not considered static content under 11-39 and therefore need not be approved.
Hearsay Social has and will continue to offer pre-review solutions for organizations seeking an extra level of security and as always the supervision and retention/retrieval of all social media communications are standard.

Deleting third-party comments

At the conference, FINRA representatives said that deleting a third-party post from a firm’s sponsored social media pages does not mean that the firm is endorsing the remaining comments. Firms are responsible for the supervision and retention of all comments, including deleted comments, but it is up to their good judgment in deciding which comments need to be removed.
It was also mentioned, however, that firms only deleting negative comments (and leaving all positive comments) could face repercussions. For this reason, comment deletion should be an action reserved for very specific scenarios in which the firm finds posts to be illegal, unprofessional, or inappropriate. The ability to delete concerning content is important for protecting a firm’s brand and to aid in this effort.
Hearsay Social offers real-time remediation functionality, automatically removing content that contains a specific keywords or phrases and maintaining a record of any deleted conversations after removing them from the public site.

Third-party content

In the case of a representative publishing a link to a third-party article, FINRA advises that the rep’s organization is responsible for the content in that article.  The organization is not responsible for the entirety of the content available on that site hosting the article, but it should be aware of what the specific article contains.
Hearsay Social offers a number of workflow and approval solutions that allow organizations to review articles and other content prior to being published by representatives of the organization.
The FINRA Rules, coupled with the information presented at the conference, indicate that the FINRA staff has a continuing and evolving grasp of the real-time nature of social media. We believe these updates allow organizations to better empower their employees on social media while remaining compliant.

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.