Last week FINRA released Regulatory Notice 11-39, Social Media Websites and the Use of Personal Devices for Business Communications, to supplement its previous Regulatory Notice 10-06, Social Media Web Sites, issued in January 2010. Since January 2010, firms have revisited their policies on social media and in light of improved technology, firms are increasingly allowing use. FINRA’s recent release is meant to provide additional guidance concerning social media rules by answering questions raised by firms and expand on those principles previously set forth in the prior notice.
FINRA’s prior notice did not sufficiently address social media in the context of advertising. Advertising is currently regulated by NASD Rule 2210 and requires principal approval prior to use and sometimes FINRA approval. In the recent Notice, FINRA clarified that static content posted on social media sites would be considered an advertisement. It is imperative for firms to consider advertising rules in connection with their social media policies. This issue will continue to evolve. Last month, FINRA proposed a rule change that, among other changes, will subsume the term “advertisement” within a new communication category “retail communication.” (See SR-FINRA-2011-035.)
FINRA also addressed data feeds, advising that it is aware of situations in which firms have received inaccurate data feeds from vendors. Supervision is only as good as the technology utilized and FINRA reminded firms that they are responsible for errors made by vendors. FINRA urged firms to regularly test their data feeds from vendors and promptly take steps to correct inaccurate data.
While FINRA further clarified rules related to social media, its recent Notice still fell short in answering a common question. FINRA advised that if an employee identified his firm and the services it offers on a personal web page, the post would constitute a business communication. However, many firms, which have a policy prohibiting business use of social media have struggled with whether to allow employees simply to identify the name of their employer. Certainly, the identification of services would be considered business use, but the mere identification of the employer would most likely not. However, firms are wise to carefully consider potential reputational consequences in allowing the name of the firm to be used on a personal site.
FINRA also emphasized that the content of a communication, rather than the type of device (personal or firm issued) used to transmit a communication is determinative as to whether the recordkeeping rules are triggered.
Firms must develop a well thought out policy for social media and carefully communicate that policy and provide thorough training to employees – especially in the difference between personal and business use. FINRA advised that it is aware that some firms randomly spot check social media websites to monitor compliance with firm policy. We recently learned of a firm that did just that and identified an employee who maintained a LinkedIn account, which included improper recommendations (testimonials), referred to a separate Twitter account, which itself had improper stock recommendations. FINRA also advised that some firms have added annual certifications to the firm’s employee training program requiring associated persons to certify on an annual or more frequent basis that they are acting in a manner consistent with the firm’s policies. Firms are advised to consider whether these procedures might be feasible for them as well.
There has been at least one reported enforcement case in FINRA’s January 2011 Notice of Disciplinary Actions. A registered principal was fined $10,000 and suspended for one year, for among other things, failing to inform her firm that she had a Twitter account and using it to tweet about stocks. FINRA found that her Tweets were “unbalanced, overwhelmingly positive and frequently predicted an imminent price rise.” The principal also failed to disclose that she and her family members held a substantial position in the stock. We can certainly expect to see more enforcement action in this area.
Please see the full notice here.