FINRA Issues Guidance on Social Networking Sites

Securities firms and brokers have been looking for guidance on how they can use social networking sites. Actually most industries have been trying to figure out what they can and cannot do with these sites. The difference is that the FINRA limitations on communicating with the public make it very difficult to use the sites in compliance with the FINRA rules.

Yesterday, FINRA released Regulatory Notice 10-06 that “clarifies the responsibilities of firms to supervise the use of social networking sites to ensure that recommendations are suitable and their customers are not misled. The Notice also addresses the recordkeeping and other responsibilities of firms.”

The primary goal of FINRA is to protect investors. So this notice does not open the floodgates for using social network sites. They note that they are not even certain that adequate technology currently exists to meet the requirements in the notice. I’m sure vendors will take notice.

“The goal of this Notice is to ensure that—as the use of socialmedia sites increases over time—investors are protected from false or misleading claims and representations, and firms are able to effectively and appropriately supervise their associated persons’ participation in these sites.”

In developing the Regulatory Notice, FINRA worked with its Social Networking Task Force composed of compliance and other representatives of 14 firms.

The notice does not change FINRA policies or their positions.  But there are some useful clarifications. If you have used a blog, FaceBook, Twitter, or LinkedIn, the clarifications are fairly obvious. For example, a blog can be an advertisement or an interactive electronic forum. It just depends on whether you allow comments or interactivity.

FINRA has scheduled a webinar to address Regulatory Notice 10-06: Compliance Considerations for Social Networking Sites

Orignally, I heard some hints that there may be some new policies announced as part of FINRA’s March 17 webinar: Implementing Compliance Practices for Social Media. But now that description has been changed to mere address implementation of Regulatory Notice 10-06.

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10 Responses to FINRA Issues Guidance on Social Networking Sites

  1. Scott Horman January 26, 2010 at 12:34 pm #

    In A5 of the FINRA Regulatory Notice, it indicates that “profile, background or wall information” are examples of static content. Does “wall information” include posts by the Fan Page Administrator to the wall, or simply the static information in the surrounding elements (info text, boxes, and favorite pages)?

    • Doug Cornelius January 26, 2010 at 1:23 pm #

      Scott –

      The answer is going to vary from platform to platform. personally, I don’t think the distinction between static content and interactive content is all that meaningful. In many sites, changing your profile pushes it into other people stream for interactivity.

      I was disappointed by the regulatory notice. It really does not add much in the way of guidance or clarification.

      On the other hand, you can’t set rules for how to use a particular platform because their features change so rapidly.

  2. Chad Bockius January 26, 2010 at 1:21 pm #

    Firms interested in learning more should check out the Companion Guide to FINRA Social Networking Compliance http://bit.ly/8xT73y. It picks up where Notice 10-06 leaves off, offering additional detail on social networking considerations and a checklist of requirements for choosing a social networking compliance vendor.

    To answer Scott’s question wall posts would not be considered static content, they are referring to the information surrounding the page as you describe.

    • Scott Horman January 26, 2010 at 1:37 pm #

      Chad – Please share any documentation that confirms your interpretation.

      • Chad Bockius January 26, 2010 at 3:50 pm #

        Scott – my interpretation comes directly from the Notice and interactions with our clients to date.

        FINRA states “Social networking sites also contain non-static, real-time communications, such as interactive posts on sites such as Twitter and Facebook. The portion of a social networking site that provides for these interactive communications constitutes an interactive electronic forum, and firms are not required to have a registered principal approve these communications prior to use. Of course, firms still must supervise these communications, as discussed below.”

        The key part of this is the discussion around the real-time communications. Tweets, status updates, comments are all examples of this. Static content like your profile would need to be pre-approved by a registered principle.

        This is the exact process our clients are implementing. We’ve actually mapped every possible communication that can occur on a social network in our system and then work without clients to execute their policy whether that content needs to be pre-approved, captured and retained or blocked in its entirety.

        With that said it is impossible to cover all scenarios with a single black and white statement, as Doug correctly points out. I think the key is for firms to adopt solutions that give them the flexibility to modify their policy programmatically so should their risk profile or the rules change they can modify how they deal with each situation.

        I hope this helps.

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