FINRA And Social Media: What to Expect From New Guidance

August 23, 2017
Joanna Belbey
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In spite of extensive regulatory guidance since 2010, some financial services firms are still baffled by how to comply with communications rules and regulations pertaining to social media. In short, regulators say that social media is just another form of communications, and ought to treated as such. Existing rules and regulations still apply, but need to be interpreted for these new communication channels. However, as more and more firms begin to use social media, regulators are besieged with questions for further clarification.

At a recent event, Barbara Stettner, Allen & Overy LLP, moderated a panel of industry experts, including Thomas M. Selman, executive vice president, Regulatory Policy and Legal Compliance Officer of the Financial Industry Regulatory Authority (FINRA), and provided the latest updates from the regulators.

FINRA and Social Media Guidance

FINRA was the first regulator to issue guidance on social media with two regulatory notices (10-06 and 11-39). According to Selman, this guidance has become fairly well-established and have been adopted by other regulators in one form or the other. FINRA’s approach is principle-based. “The original point of the notices was to try to transfer the principles from the paper world over to the electronic world, set up a set of principles, allow social media to grow within those principles, and instead of dictating the technology, see what develops. I think we’ve accomplished that.”

Financial services firms are more engaged in social media than they were in 2010. Plus social platforms are constantly evolving, with new features are being released every day. One of the challenges that firms face is keeping up with those changes. And therefore, “firms have additional questions regarding specific applications of those original principles” explained Selman. In response, FINRA is exploring issuing further guidance on topics such as:

  • Text messaging: Text messaging is an important form of marketing. It's how communications are occurring more and more frequently. May firms and financial advisers (FAs) use text messaging for business purposes? Yes, as long as they can maintain business records. There’s nothing inherently problematic about text messaging, provided that the record keeping can be made, which might be a challenge for some firms.
  • Business versus personal communication: What exactly is a business record? This is a very difficult question because it relates to the “business-as-such” concept that the Securities and Exchange Commission (SEC) developed. To what extent can one mention one’s firm without having it be deemed as business communication? For example, can an employee share about a charity event the firm is sponsoring? Or what about sharing some other aspect of the firm, that isn’t an advertisement or promotion of the products or services of the firm, but merely some kind of a branding initiative? And what about the records of employees who are encouraged to act as branding ambassadors on behalf of the firm? More questions than answers at the moment. “These are the types of question that we’re going to try address in future guidance” said Selman.
  • Hyperlinking: According to Selman, “hyperlinks is almost a quaint term these days. Nobody really uses it.” But questions continue to arise about the responsibility of a firm when linking to other sites. To what extent is that link to the third party the responsibility of the firm? It goes back to SEC’s “adoption and entanglement” principles (the degree to which the firm was involved in the creation and / or approval of content) and to what extent is a firm viewed as having “adopted” the linked material, explained Selman.
  • Native advertising: There has also been requests for guidance on native advertising -- material that resembles editorial content but is paid for by an advertiser and intended to promote the advertiser's product. Selman stated that FINRA would most likely come out similarly to other regulators, such as the Federal Trade Commission (FTC), at least on the question of how firms would have to clearly indicate who is actually sponsoring this native advertisement, and the fact it’s paid-for advertising. In general, communications must be fair, balanced and not misleading. Firms must clearly indicate that “native advertisements”, are in fact, paid-for advertising.
  • Testimonials: There have been many questions from the industry about testimonials, particularly in the context of LinkedIn, where there are both “skills and endorsements” and “recommendations”. FINRA’s position is that, to the extent that somebody endorses you, your product, or your financial advisor’s (FA’s) product or service, and the FA had nothing to do with it, then that wouldn’t consider having been “adopted” by the FA and certainly not “entangled”. However, should an FA reach out and solicit a recommendation from a person or, having received an endorsement, likes the endorsement, then you’ve reached a point at which they have essentially adopted it.

Based on principles that FINRA has articulated in the past, it’s fairly clear that an inactive receipt of information by the FA doesn’t mean that the FA or firm has adopted the content of the communication. However, should the firm or FA to embrace that communication, then there would be an “adoption” and resulting in recordkeeping, suitability and supervisory requirements. This is distinguished from the SEC’s conundrum in respect to the testimonial rule, which simply says that even an indirect reference to an endorsement is considered a testimonial concluded Selman.

Look for more about the SEC, testimonials and social media in future updates….



Note from contributor. Since this article was published, FINRA has released additional guidance for social media and text messaging: FINRA Regulatory Notice 17-18 Guidance on Social Networking Websites and Business Communications. The issues listed above were addressed in detail. Click here for more information:

This blog appeared previously on Forbes.