The Financial Industry Regulatory Authority (“FINRA”) recently issued a guidance for securities firms and brokers on how to use social networking websites such as Facebook and LinkedIn. The guidance focuses on preventing the use of social networking sites to propagate information to investors that may be false or misleading, and indicates that securities recommendations made by the firms or their personnel on such forums may constitute a “recommendation” for the purposes of Rule 2310 and communications that recommend specific investment products may trigger the FINRA suitability rule. Under FINRA rules, static content must have the approval of a registered principal of the security firm. Interactive content does not have the same requirements. Since social media has both static and active content, FINRA provides guidance about how it will determine whether content requires prior approval. If, for example, a blog is used to create real-time interactive communications, FINRA would not consider the content on the blog as requiring prior principal approval, provided, however, that such communications are supervised. With regard to social networking websites such as Facebook, FINRA would find that the static content on the websites, such as profile information, or background or wall information, needing prior approval, but not for real-time non-static content. The guide also indicates that the content provisions of FINRA’s communications rules apply to interactive electronic communications sent through social networking sites, and indicates that employees who participate in social networking should be properly supervised and trained, and disciplined if they fail to meet the company’s guidelines. The guide also states that in general, FINRA will not treat posts by consumers or other third parties on social networking sites as communications by the firm, unless the firm participates in the creation of the content. The guides require that, in addition to considering the guides, each firm should also develop its own social networking policies and procedures designed to suit the firm and its personnel.
TIP: Securities firms and brokers should have a social media policy in place, and should train employees on how to adhere to that policy. The policy should follow the requirements of the new FINRA guide.