This week, FINRA posted on its website a Targeted Examination Letter entitled “Spot-Check of Social Media Communications” (“Social Media Letter”). FINRA occasionally posts Targeted Examination Letters to alert its members to specific focus areas. The Social Media Letter defines “social media” to include such things as Facebook, Twitter, LinkedIn and blogs. Given the proliferation of social media throughout virtually all facets of our daily lives, it is not surprising that FINRA is attempting to understand and evaluate how its membership is using those devices. The Social Media Letter indicates that FINRA is particularly interested in developing information about the compliance programs in place for social media usage. In short, the Social Media Letter is a wake-up call to broker-dealers that they need to implement the necessary control structure and supervisory processes before permitting the use of social media for marketing, communications or solicitations.
Historically, many firms were resistant to accept social media as a communication method due to the burdensome obligation to retain and supervise those communications, as well as the overall responsibility for the content of firm-endorsed communications.1 Now that social media has quickly become an entrenched cultural feature, many firms are reassessing their initial reluctance, and are now more willing to permit the use of social media.
The Social Media Letter explores the scope of the use of social media at the recipient firms. The letter asks recipients to identify what forms of social media they permit “at the corporate level,” meaning the social media usage that is endorsed by the firm. The letter then seeks general information about the systems and controls in place to support that use of social media, and an explanation of how the firm’s registered representatives and associated persons use social media to conduct firm business. The letter also asks recipients to identify the means of monitoring compliance with their own social media policies.
In additiion, the Social Media Letter drills down into social media usage by certain high-producing employees. Specifically, the letter asks recipients to identify their top 20 producing registered representatives who use social media, and to explain how they used it during the period February 4, 2013 through May 4, 2013. FINRA is presumably seeking this information to better understand how prevalent social media has become in the retail brokerage business, and how that usage compares to the corresponding compliance systems that are in place.
Social media is an increasingly important means of communication, but those communications are still subject to FINRA’s traditional rules and limitations.2 The Social Media Letter is a reminder for broker-dealers not to rush to embrace this increasingly popular method of communicating without first having the necessary control structure in place. Providing a social media platform means implementing safeguards designed to prevent its misuse.
The full text of the FINRA targeted examination letter is as follows:
FINRA Rule 2210(c)(6) states that each FINRA firm's written (including electronic) communications are subject to a periodic spot-check procedure. Pursuant to this procedure, the Advertising Regulation Department requests that you provide the following:
1. An explanation of how the firm is currently using social media (e.g., Facebook, Twitter, LinkedIn, blogs) at the corporate level in the conduct of its business. Please be specific as to the business purpose of each social media platform as it is used by the firm.
2. Please provide the following with respect to the firm:
a. The URL for each of the social media sites used by the firm at the corporate level,
b. The date the firm began using each of the sites identified above,
c. The identity of all individuals who post and/or update content of the sites identified above
3. An explanation of how the firm's registered representatives and associated persons generally use social media in the conduct of the firm's business, including the date(s) the firm began allowing the use of each social media platform and whether such usage continues.
4. The portion of your firm's written supervisory procedures concerning the production, approval and distribution of social media communications in effect during the time period February 4, 2013 through May 4, 2013.
5. An explanation of the measures that your firm has adopted to monitor compliance with the firm's social media policies (e.g., training meetings, annual certification, technology).
6. A tabular list of your firm's top 20 producing registered representatives (based on commissioned sales) who used social media for business purposes to interact with retail investors as defined in FINRA Rule 2210(a)(6) during the time period February 4, 2013 through May 4, 2013. Please identify the type of social media used by each individual for business purposes during this time period. Please include the individual's full name and CRD number as well as the dollar amount of sales made and commissions earned during the period.