FINRA’s first effort, Regulatory Notice 10-06, seemed to raise as many questions as it answered. Now FINRA has issued further guidance with the issuance of Regulatory Notice 11-39 (“RN 11-39”), which is meant to supplement, not supplant, Regulatory Notice 10-06.
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In RN 11-39 FINRA made clear that regardless of all the new communication methods available, when licensed securities personnel and their member firms share information with their clients or the public, those communications are still subject to all FINRA recordkeeping, suitability, supervision and content requirements. So, how do you know what kinds of Internet communications are permitted? And, even if allowed under FINRA and SEC rules, what regulatory requirements do you a need to keep in mind to make it easier to get your B/D to approve your initiative?
A. Are your Internet Activities “Business Communications”?
Determining whether your new blog or other content you create requires pre-approval of your B/D boils down to this key issue: is it a “business communication?”
If it is, then your B/D must follow federal securities laws and FINRA rules governing review, approval, retention, and access to the content.
Essentiallty, if you plan to use a social media site for business purposes, then a registered principal of your firm must review the site with your content and profille in “launch format” prior to your first posting.
Whether your proposed posting is a business communication is not determined by the type of device you using to post content. Whether you post from a computer, tablet, or mobile phone does not matter. Nor does it matter whether you’re posting using a company-owned or personal device. It's the content of your postings that matters.
B. How Does Supervision of Your Social Media Postings Work?
Once you have gained approval for your new social media pages, the way you use itdetermines how your B/D must monitor your activities.
Witgh regard to unscripted comments in public chat forums, FINRA does not object to these kinds of discussions as long as the activity is permitted by your B/D's rules.
FINRA treats appearances on a live interactive forums, such as a webinar or live online public chat, as a “public appearance.” That does not require your B/D to pre-approve the content.
This includes responding to inquiries from the investing public about securities.
However, many B/Ds have policies about how to handle these kinds of inquiries and often require advisers to use pre-approved “canned” responses that direct investors to move any further dialogue over to firm-monitored e-mail systems.
Keep in mind that, before you decide to create or write for any Internet site, the “guts” of the site’s programming must be formatted in a way that enables your firm to conduct post-posting reviews of what you have written and to retain copies of all your content.
RN 11-39 implicitly suggests Member Firms use key-word searches or other algorithms that are designed to scan content and alert a compliance executive to review questionable postings.
In short, while your B/D will not be reviewing what you write before you post, you should always assume that that it will be looking over your shoulder after the fact, particularly given the heightened attention FINRA is giving this issue.
C. Differences Between Interactive Communications and Articles
Once you have finished an interactive discussion on your social media site, can you immediately copy and paste to create a permanent article on your website and get the most mileage out of your work? RN 11-39 makes clear that the answer is no.
Under RN 11-39, before social media postings can be converted to “static” articles that are preserved on a website for future viewing, the content must be reviewed and approved in advance by a registered principal of your firm, because the content constitutes an “advertisement” under applicable NASD rules.
Remember too, that if you later make a “material” update or change to the article, the revised document must be approved again before you post it; from FINRA’s standpoint.
D. What About Providing Viewers Access to Content Generated by Others?
Many advisers want to provide clients access to content generated by third-parties. In RN 11-39, FINRA has made clear that such linkages create regulatory issues, and must be monitored carefully.
Specifically, RN 11-39 advises Member Firms that they will become responsible for all content on third-party linked sites where the firm either “adopts” or “becomes entangled” with the material, even if the firm had nothing to do with creating it.
What kinds of content will raise a red flag with Compliance and may put your firm at risk of being deemed to have adopted the content at a third=party website?
- Any statements which imply that you or the B/D endorse or agree with the material on the third-party site;
- Co-Branding any part of the third-party site (such as including a firm logo on the home page or any sub-page);
- Your involvement in helping to develop the third-party site; or
- Your involvement in developing content for the site
RN 11-39 is FINRA’s latest effort to balance financial professionals’ desire to take advantage of the Internet’s communication revolution with its regulatory mandate to ensure Associated Persons’ activities are effectively monitored and the investing public is protected.
Before moving forward with your plan to employ social media, coordinate the effort with your firm’s Compliance department, and continue to confer once your site has gone live.
Social media can be a powerful tool, but not if it comes at the cost of a FINRA inquiry or termination that marks up your Form U-4.