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FINRA Offers Additional Guidance on Social Media and Business Communications

Saturday, May 13, 2017

As social media use continues to increase among American adults, investment firms have continued to raise new questions related to how FINRA rules apply to social medial and digital communications. Pursuant to Regulatory Notices 10-06 and 11-39, firms are required to retain records of digital communications. The content of the communication determines whether it should be retained. The type of device used to transmit the communication is irrelevant.

While posts made by third parties—including customers—on social media sites are generally not considered to be communications by the firm, there are some exceptions. For example, in instances in which the firm or an associated person has assisted in the preparation of the content or paid for it, or endorsed or approved of the content, posts by a third-party on a firm or associated person’s business website, might be deemed to be communications with the public.

In the event a firm knows or has reason to know that a third-party site contains false or misleading content, it may not establish a link to said site nor “include a link on its website if there are any red flags that indicate the linked site contains false or misleading content.” Entanglement with or adoption of content on a third-party site by the firm, will render the firm responsible for the content on that site.
In Regulatory Notice 17-18, published in April 2017, FINRA addressed several additional questions and offered guidance with respect to social networking websites and business communications. As we discuss during Chief Compliance Officer Training for all of our clients upon registration of their RIAs, every firm has an obligation to ensure that it can retain communications between the firm and associated persons and clients if it intends to communicate with clients through a text messaging app or chat service. SEC Rules 17a-3 and 17a-4, and FINRA Rule 4511 specifically address this requirement.

Many social networking websites allow users who have connected to another individual on the site to provide comments or opinions related to that person’s professional capabilities. Unsolicited remarks posted on the site are not considered by FINRA to be communications of the broker-dealer or the registered representative. However, if the opinions of, or comments regarding, the user’s professional capabilities are solicited, the requirements under FINRA Rule 2210, related to testimonials, apply. If unsolicited comments or opinions are liked or shared by the registered representative on the social networking site, the representative will be deemed to have adopted the content, and the communications will be subject to the relevant FINRA rules concerning communications, including the prohibition on misleading or incomplete statements or claims.

Click here to access a copy of Regulatory Notice 17-18 which includes additional questions and answers that provide further guidance on social networking websites and business communications. Contact us if you have questions regarding social media use by associated persons and/or marketing materials for your firm. We have consultants who can review your materials and provide you with additional guidance regarding rules related to marketing and social media use.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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