More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
In an update to proposed regulations that FINRA had filed with the Securities and Exchange Commission, the agency has at least partially bowed to comments from member firms, and decided not to require social media postings to be regarded as subject to a post-use filing requirement.
Originally FINRA had said that such communications, while formerly classified in the same category as television interviews and similar public appearances, should be instead regarded as retail communications and therefore, in proposed FINRA Rule 2210(b)(1)(D)(ii), be subject to requirements of NASD Rule 3010(d). "Thus," it said, "members would not have to approve each such retail communication prior to use, and would have flexibility on how they establish their supervisory systems." However, they would still have to file such communications.
Member firms offered arguments against the proposed rule, with Fidelity urging FINRA to retain the current definition of public appearance under NASD Rule 2210 and include interactive electronic communications in this category, "recognizing that these communications are more analogous to physical public appearances."
FINRA disagreed with Fidelity's assessment, arguing that there was a substantial difference between a one-off public appearance and a communication on the Web, which may linger indefinitely and be viewed by many more people than, say, a television interview or a seminar.
SIFMA, which plans to hold a social media conference in New York on Feb. 3, took a different tack. In its comment letter, it said, “If every member firm is required to monitor and review all of the online postings of all of its registered representatives, and every member firm is required to file those that trigger a filing requirement, the impact upon FINRA is potentially overwhelming”–or, as FINRA put it in its update, “SIFMA recommended that FINRA exclude content that is interactive rather than static from the filing requirements under proposed
Perhaps that struck a nerve. The agency has decided not to require social media communications to be filed; however, note the caveat at the end: “FINRA recognizes that a member may face supervisory and operational difficulties if it is required to file an online forum post given that the member will be supervising such communications in the same manner as correspondence. Accordingly, FINRA is amending proposed FINRA Rule 2210(c)(7) to add a filing exclusion for retail communications that are posted on online interactive electronic forums. Nevertheless, members should be aware that this exemption does not apply to any filing requirement that may arise under either federal law or SEC Rules.”
The filing exclusion would apply to any retail communication that is posted on an online interactive electronic forum.
That caveat may become reality if there are too many more cases like this one, reported Jan. 4 by AdvisorOne.com, in which an advisor was charged with fraud by the SEC for not only misrepresenting himself as a broker-dealer but offering to sell fictitious securities to a number of interested potential buyers through LinkedIn. After all, sometimes water flows uphill, even if it takes outside intervention to make it happen.