Basic Tips for Social Media Regulatory Compliance in Financial Services SEC FINRA

Social Media and the Financial Services Industry.

From the Madoff scandal, to the Occupy Wall Street Movement, to Mitt Romney’s tax returns, the financial services sector is accustomed to the scrutiny and ire of the public and government regulators. Therefore it is no surprise that on January 4, 2012, the SEC’s Office of Compliance Inspections and Examinations, in coordination with other SEC staff, including in the Division of Enforcement’s Asset Management Unit and the Division of Investment Management, issued its “Investment Adviser Use of Social Media” paper. The paper begins by observing that although “many firms have policies and procedures within their compliance programs” governing use of social media” there is wide “variation in the form and substance of the policies and procedures.” The staff noted that many firms have multiple overlapping procedures that apply to advertisements, client communications or electronic communications generally, which may or may not specifically include social media use. Such lack of specificity may cause confusion as to what procedures or standards apply to social media use.

The SEC paper suggests that the following factors are relevant to determining the effectiveness of a Social Media compliance program:

  • Usage Guidelines
  • Content Standards
  • Monitoring
  • Frequency of Monitoring
  • Approval of Content
  • Firm Resources
  • Criteria for Approving Participation
  • Training
  • Certification
  • Functionality of web sites and updates thereto
  • Personal/Professional sites
  • Information security
  • Enterprise-wide web site content cross collateralization

Similarly, the Financial Industry Regulatory Authority (FINRA) has issued guidance for secutires brokerage firms. According to its web site, FINRA “is the largest independent regulator for all securities firms doing business in the United States.” FINRA protects American investors by ensuring fairness and honesty in the securities industry. In January 2010, FINRA issued Regulatory Notice 10-06, providing guidance on the application of FINRA rules governing communications with the public to social media sites and reminding firms of the recordkeeping, suitability, supervision and content requirements for such communications. Since its publication, firms have raised additional questions regarding the application of the rules. Key take aways from FINRA’s guidance include the flowing:

  • Brokerages have supervisory and record keeping obligations based on the content of the communications – whether it is business related – and not the media
  • Broker-dealers must track and supervise messages that deal with business
  • Firms must have systems in place to supervise and retain interactions with customers, if they are made through personal mobile devices
  • A broker must get approval from the firm if she mentions her employer on a social media site
  • Pre-approval for instant messages, also known as “unscripted interactions’ in legalese, is not necessary as long as supervisors are informed after the fact
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