Last August, when it issued part two of its social media guidance (Regulatory Notice 11-39), FIN RA again identified the “business as such” requirement under Securities Exchange Act Rule 17a-4 as the trigger for its regulation of social media communications. So, for example, if a registered representative communicates via Twitter or Facebook, a firm should apply a “facts and circumstances test” to determine whether the communication relates to the broker-dealer’s business as such. If it does, the representative’s tweet or Facebook post must be “retained, retrievable, and supervised” by the firm.
While both FIN RA and the SEC have sought to subject social media to the same regulatory approach as traditional forms of communication, social media technology continues to evolve faster than securities regulation. Some see the resulting regulatory approach as failing to strike an appropriate balance between regulatory costs and benefits. For example, it may be too costly or burdensome for a firm to apply a facts and circumstances test to each and every communication; there is not always a clear delineation between business and personal communications. Some firms have responded by prohibiting altogether the business use of social media by their associated persons.
For its part, the Investment Company Institute (ICI) has called for a comprehensive approach to electronic communications that reflects a strong understanding of evolving media and technological capabilities and appropriately considers the costs and benefits of regulation. The ICI recommends that consideration be given to a more flexible regulatory approach that does not require broker-dealers to supervise and maintain a record of every communication related to its business as such.
The ICI and its members have proposed working with FIN RA and the SEC to modernize the regulatory approach to keep pace with technological advances. This would be a positive step.
