FINRA Publishes New Social Media Guidance

FINRA Publishes New Social Media Guidance

Brokers and advisers increasingly rely on social media to connect with current and potential clients. After all, don’t we all prefer to read a 140-character Tweet promoting a new investment opportunity instead of digesting a 20-page prospectus filled with boilerplate and legalese?

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The Financial Industry Regulatory Authority (FINRA) has previously issued social media guidance regarding how investment firms can take advantage of social media without running afoul of their compliance obligations. However, the existing guidance surrounding the use of social media has largely failed to keep pace with the popularity of social media, leaving a lot of “gray” areas and opportunities for compliance missteps.

In response, FINRA recently released a Regulatory Notice entitled, Social Media and Digital Communications: Guidance on Social Networking Websites and Business Communications. The guidance addresses the application of FINRA Rule 2210 to social media through a series of questions and answers.

Existing FINRA Guidance on Social Media

FINRA Rule 2210, which governs communications to the public, requires that broker-dealers’ communications are fair and balanced and do not omit material information that would cause them to be misleading. FINRA previously addressed how the rule applies to posts to social media sites and other digital communications. In addition to recordkeeping obligations, FINRA has provided guidance on third-party social media posts and hyperlinks to third-party websites.

In Regulatory Notices 10-06 and 11-39, FINRA advised firms that they are obligated to retain records of digital communications that relate to their “business as such” and that determining whether a communication must be retained depends on its content and not upon the type of device or technology used to transmit the communication.

Regulatory Notice 10-06 that, as a general matter, posts by customers or other third parties on social media sites established by a firm or its personnel do not constitute communications with the public by the firm or its associated persons under Rule 2210. Exceptions include if the firm or an associated person has (1) paid for or been involved in the preparation of the content (referred to as “entanglement”) or (2) explicitly or implicitly endorsed or approved the content (referred to as “adoption”).

Regulatory Notice 11-39 advised that a member may not establish a link to any third-party site that the firm knows or has reason to know contains false or misleading content and may not include a link on its website if there are any red flags that indicate the linked site contains false or misleading content. It further stated firms can be liable under FINRA rules for content on a linked third-party site if the firm has adopted or has become entangled with its content.

Updated FAQs on Social Media Compliance 

In April, FINRA offered additional guidance, citing the proliferation of social media as well as requests from the industry for greater clarity on certain issues. The guidance consists of 12 questions and answers, with topic ranging from testimonials to native advertising. Below are several highlights:

• Text Messaging “Apps”: Firms that intend to communicate, or permit their associated persons to communicate, through a text messaging app or chat service must first ensure that they can retain records of any business-related communications.
• Sharing Content: By sharing or linking to specific content, a firm adopts the content and would be responsible for ensuring that, when read in context with the statements in the originating post, the content complies with the same standards as communications created by, or on behalf of, the firm. However, by solely sharing or linking to content that contains links, a firm would not be responsible for the content available at such links.
• Personal Communications: A communication by an associated person is subject to Rule 2210 only when the content relates to the products or services of the firm.
• Native Advertising: Firms may use native advertising, which is defined as “content that bears a similarity to the news, feature articles, product reviews, entertainment and other material that surrounds it online,” so long as it complies with FINRA Rule 2210. In particular, native advertising must prominently disclose the firm’s name, reflect accurately any relationship between the firm and any other entity or individual who is also named, and reflect whether mentioned products or services are offered by the firm as required by Rule 2210(d)(3).
• Use of “Influencers”: Firms should clearly identify as advertisements any communications that take the form of comments or posts by influencers and include the broker-dealer’s name as well as any other information required for compliance with Rule 2210.
• Testimonials: FINRA does not regard unsolicited third-party opinions or comments posted on a social network to be communications of the broker-dealer or the representative for purposes of Rule 2210. However, by liking or sharing the favorable comments, the representative has adopted them, and they are now subject to FINRA’s communications rules.

Social media is a frequent area of concern during FINRA exams. FINRA has also conducted targeted social media “sweeps” in the past. Accordingly, member firms should thoroughly review the entire posting and discuss any compliance concerns with experienced counsel. Therefore, if you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, at 201-806-3364.