The Financial Industry Regulatory Authority (FINRA) recently issued a Regulatory Notice providing guidance to financial firms regarding use of social media by the firms and their employees and the applicability of existing rules to such activities. The topics covered include:
- Social Media Policy: Firms must adopt policies and procedures reasonably designed to ensure that their associated persons who participate in social media sites for business purposes are appropriately supervised, have the necessary training and background to engage in such activities, and do not present undue risks to investors. Firms must have a general policy prohibiting any associated person from engaging in business communications in a social media site that is not subject to the firm’s supervision. Firms also must require that only those associated persons who have received appropriate training on the firm’s policies and procedures regarding interactive electronic communications may engage in such communications.
- Recordkeeping responsibilities: Firms that intend to communicate, or permit its associated persons to communicate through social media sites must first ensure that it can retain records of those communications.
- Suitability Responsibilities: If a firm or its personnel recommends a social media site, they must make sure it is suitable for every investor who might receive it, or they may be subject to significant liability under existing rules.
- Real-Time Interactive Communication on Social Media: Unscripted participation by firm personnel in a chat room, a blog with real-time interactive communications, or wall posts and other interactive messaging on sites such as Facebook, Twitter and LinkedIn are not required to be individually approved by a firm principal, although it is required that the firm supervise all such communications in a manner reasonably designed to ensure that they do not violate the content requirements of FINRA’s communications rules.
- Static Content on Social Media: For static content, like banner ads or profile, background, or wall information, a registered principal of the firm must approve all such content before it is posted.
- Third Party Posts: As a general matter, FINRA does not treat posts by customers or other third parties as the firm’s communication with the public. Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content.
According to FINRA, the goal of the Notice is “to ensure that – as the use of social media sites increases over time – investors are protected from false or misleading claims and representations, and firms are able to effectively and appropriately supervise their associated persons’ participation in these sites.” It should be noted that the Notice only addresses the use by a firm or its personnel of social media sites for business purposes. Notwithstanding this fact, financial firm social media policies should likely also address firm personnel’s personal use of social media sites.