This past month the U.S. Financial Industry Regulatory Authority (FINRA) posted to its website a targeted examination letter that it has sent to members requesting information on the use of social media.

FINRA’s concerns regarding appropriate controls and governance of the use of social media by members is not new. In January 2010, FINRA issued guidance on the use of blogs and social media. This was followed in August 2011 with further guidance and clarification. FINRA identified a number of compliance issues relating to social media. Among those were:

  • Record-keeping responsibilities. Registrants who use social media to communicate for business purposes must retain records of those communications for prescribed periods.
  • Supervision. A registered principal must review prior to use any social media site that an associated person intends to employ for a business purpose, although there may be exceptions for unscripted participation in interactive social media exchanges.
  • Recommendations. The broadcast nature of social media means that a broad spectrum of individuals might have access to social media posts made by a registrant or on behalf of the registrant. To the extent that the post could be interpreted as a recommendation, the registrant must ensure that the recommendation is suitable for every investor to whom it is made.

In its targeted enforcement letter, FINRA requests URLs for social media sites used by the firm, the date the firm began using the sites, and the identity of the individuals who are able to post and/or update content to the sites. FINRA also requests an explanation of how registered representatives and associated persons use social media and is requesting a list of high-producing representatives who use social media to interact with clients.

In addition, FINRA requests production of the firm’s “written supervisory procedures concerning the production, approval and distribution of social media communications” as well as an explanation of the methods employed to monitor compliance with social media policies.…