More On Legal & Compliancefrom The Advisor's Professional Library
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- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
The Financial Industry Regulatory Authority on Thursday provided guidance to brokerage firms about social media and the use of personal devices for business communications, and by early Friday the news had the finance world buzzing about how FINRA’s new rules will affect the brokerage industry.
Regulatory Notice 11-39, Social Media Websites and the Use of Personal Devices for Business Communications, is FINRA’s attempt to clarify how firms can use social media. The regs take into account the interactive nature of social media. Specifically, they differentiate between “unscripted” interactions between users on social media sites and “static” posting.
With these new regs, FINRA has recognized how important social media and personal devices such as smartphones have become to the financial industry. And the new regs will help reassure companies that have feared entering the unfettered world of Twitter and Facebook by providing them some guidance about what is and isn’t OK to do when engaging with the world on those sites.
The new regs lays out in eight pages guidance on key topics such as communications with the public, personal electronic devices, recordkeeping, social networking websites and supervision.
Significantly, the new regs put the onus on companies to develop their own policies and procedures for social media use. For example, FINRA says that in terms of supervision: “A firm must conduct appropriate training and education concerning its policies, including those relating to social media. Firms must follow up on ‘red flags’ that may indicate that an associated person is not complying with firm policies.”
To be sure, firms have for some time been grappling with the issue of how to use social media and smartphones in their business practices.
“In this most recent release, it’s FINRA acknowledging what has already happened. These are such profound consumer technologies—tablets and iPhones and things—that everybody has them already,” said Stacey Haefele, chief executive of HNW Inc., a New York-based marketing firm with expertise in social media that caters to large financial services institutions. “Firms have been working hard to determine how they’re going to support these platforms in their personal devices.”
Further, Haefele said, FINRA’s new regs are big news because they relax the notion of firms’ having to review every single word that gets published on Facebook or Twitter or other social media sites.
“Initial social media site review or initial post review by a registered principal is required, but then thereafter, unscripted participation is like a public appearance. You don’t have to clear everything you’re going to say with an RP. It’s a bit liberating,” she said.
Haefele noted that the big four brokerage firms—Merrill Lynch, Morgan Stanley, UBS and Wells Fargo—are already active in social media, especially Morgan Stanley, which announced in May that it is working with Socialware on its participation in the public domain.
“Every single one of them is active in setting policy and guidelines,” Haefele said. “They’re either doing trials or limited scope betas. Everybody’s doing something. This just helps provide clarity around this issue and extends the borders of the map a little further.”
Some questions remain, however, Haefele added. For example, she said, social media interchanges are not a monologue, they are a dialogue. And that can lead to complications.
“The unwritten rules of the road of social media say that you can’t just publish and not read what other people are doing. If you want to be followed, you must follow. Very quickly, you move from static to interactive and to endorsement or adoption of content if I follow or like you. If you post something and I like it, have I now adopted or endorsed it? Is my firm now responsible for it?
Haefele predicted that firms will now enter some tough territory because social media is about an exchange of ideas and not just one-way publishing. “I don’t know that I expect FINRA to fully define that,” she said. “I think the firms, as FINRA says, have to figure some of that out for themselves. That’s going to get murky pretty quickly.”
In January 2010, FINRA issued Regulatory Notice 10-06, providing guidance on the application of FINRA rules governing communications with the public to social media sites. The notice, which reminded firms of the recordkeeping, suitability, supervision and content requirements for such communications, gave rise to questions from firms about the application of the rules.
Thursday’s new notice responds to these questions by providing further clarification about application of the rules to new technologies, FINRA said in its news release, but added, “it is not intended to alter the principles or the guidance provided in the 10-06 notice.