Broker-dealers must keep text messages, reps are allowed to share certain firm-created content using their personal media accounts and unsolicited third-party comments on social media are not testimonials, according to new guidance on social media and texting issued by the Financial Industry Regulatory Authority.
Regulatory Notice 17-18, Social Media and Digital Communications, is the third social-media related notice the self-regulator has issued and comes in response to requests by broker-dealers that have expanded their use of digital communications.
The two other Regulatory Notices 10-06 and 11-39 provided guidance on the application of FINRA rules governing communications with the public to social media sites and the use of personal devices for business communications.
FINRA’s third social media-related guidance, issued in Q & A format, is also in response to a recommendation in FINRA’s Retrospective Rule Report on the Communications With the Public Rules.
The self-regulator answers 12 questions posed by BDs and reps.
For instance, one asks whether a broker-dealer is required to retain records of communications related to its business that are made through text messaging apps and chat services.
FINRA’s reply: Yes. “As with social media, every firm that intends to communicate, or permit its associated persons to communicate, with regard to its business through a text messaging app or chat service must first ensure that it can retain records of those communications as required by SEA Rules 17a-3 and 17a-4 and FINRA Rule 4511. SEC and FINRA rules require that, for record retention purposes, the content of the communication determines what must be retained.”
However, Yasmin Zarabi, vice president of Legal and Compliance at Hearsay Systems, noted in a recent blog post that “several important complexities” are included in FINRA’s text messaging requirements.
“FINRA specifically says if your firm ‘intends’ to communicate, then it should first have record retention in place; however, it is unclear how ‘intend’ is interpreted. For that reason, if your firm is in executive discussions regarding text messaging, then it should be thinking about having the proper compliance tools in place for supervision and record-keeping of texts,” Zarabi wrote.
Another “gray area,” she continued, “is the difference between what makes something a personal communication versus a business communication. Are there topics which advisors can communicate with clients that are not deemed as business communication under FINRA rules? FINRA states that the content of the communication determines what must be retained. As such, a firm would not be able to decipher what is or isn’t considered business communications unless it has clear policies and technology in place that can help clarify such complexity.”
As to reps’ personal communications, the guidance allows registered reps to share certain firm created content using their personal media accounts, without the communication being deemed a business communication.
The types of content, FINRA says, can include articles about charitable events sponsored by the firm, human interest stories and employment opportunities.
The “good news,” Zarabi added, is that FINRA now states that “it does not regard unsolicited third-party comments on social media to be a testimonial.”
However, “advisors should not like or share such favorable comments. Should they do so, then they have ‘adopted’ the comments as their own.”
RIAs should still adhere to SEC Rule 206(4), which prohibits promotion of client testimonials and endorsements, Zarabi points out.
The SEC’s Guidance on the Testimonial Rule and Social Media “states that investment advisors should not invite their clients to post commentary directly on their own social media site or website,” Zarabi said. “But if they receive unsolicited comments on their social media profile, then they are not responsible for it. Still, a prominently placed disclaimer in the summary section of a rep’s profile, to avoid entanglement with a client’s comments, is prudent.”
FINRA also confirmed previous guidance related to hyperlinks. If firms link directly to information then they are responsible for the content of the link. However, FINRA provides relief by clarifying that if the linked content contains links, then the firm is not responsible for the content accessed through those additional links.
As to “native advertising,” which are communications that appear to be independently prepared articles or blogs, but are actually paid advertising, FINRA states that firms may use this type of communication but that the advertising rules apply and the member name must be included.
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