Verily, the rules of FINRA doth encompass social media as any other form of communication. Discover the art of constructing a strategy in compliance and evading the perils of common violations.
FINRA, that beacon of financial regulation, be an organization of a not-for-profit nature, sanctioned by the U.S. government to oversee the broker-dealers within the lands of the United States. And under the watchful eye of the Securities and Exchange Commission (SEC) do they operate.
The noble goals of FINRA doth include the safeguarding of investors and the preservation of market integrity. And in the realm of social media, their goals remain unchanged. Verily, tis incumbent upon them to ensure that advertisements for investment products be truthful and devoid of misleading information. Moreover, they oversee the requirements of disclosure and recordkeeping for investment products.
What sayeth FINRA regarding social media, thou may wonder? In the year 2010, at the infancy of social networking, did FINRA first issue guidance specific to this realm. Lo and behold, thirteen years hence, FINRA hath much to impart concerning social media. Indeed, social media hath become the primary source of investment information for the Gen Z investors, as cited by the FINRA Investor Education Foundation and the CFA Institute. Aye, nearly half of millennials and over a quarter of Gen X doth turn to social media for enlightenment on matters of investment.
Hark! FINRA doth declare that their rules apply to social media just as they do to any other means of communication, for as they do proclaim, “Social media may be a new medium, but FINRA’s rules on communicating with the public are still applicable.” Thus, let us journey through this discourse to uncover the implications for financial institutions engaging with customers through social media.
### The Perils and Pitfalls of FINRA on Social Media
Behold! Herein lies a compendium of the most common transgressions that could lead one astray from the path of compliance with FINRA regulations upon the realm of social media.
#### Neglecting the Archive of Client Communications
Verily, FINRA doth mandate the archiving of communications related to “business as such” for a span of not less than three years. Take heed, for this requirement doth extend even unto the individual accounts utilized for business purposes by brokers. Though archiving be set in place for corporate channels, doth thou possess an archive of communications from these individual accounts? Remember, the mandate encompasseth not only direct messaging but also public comments upon thy social channels.
#### Insufficient Supervision and Approval by a Principal
A registered principal must cast an eye upon the firm’s social media accounts ere they be put to use. Be it the accounts managed by individual representatives or brokers, all static content upon social channels must receive the blessing of a registered principal before it be sent forth into the digital realm. Interactive content, too, must be monitored for compliance. Know ye the distinction between static and interactive communications? Static content endures over time, while interactive communication unfolds in the moment. ‘Tis a duty to keep records of these approvals.
#### Dealing with the Comments of Social Channels
Attend closely to the comments upon thy social channels. Seek out grievances, directives, or any communications warranting review. For these comments, too, are subject to the temporal requirements akin to all other forms of communication. Fear not positive feedback, unless thou engage with it through likes, replies, or shares, for in such a case thou hast “adopted” the comments and must provide testimonial disclosures, marked by a clearly labeled link.
#### Enticing Links to Third-Party Websites
Curated content doth enrich thy social media calendar, yet take care in the sharing thereof. Peruse FINRA Regulatory Notice 11-39, for it forbids the linking to sites harboring “false or misleading content.” Regulatory Notice 17-18 further elucidates thus, “By sharing or linking to specific content, the firm has adopted the content and would be responsible for ensuring that, when read in context with the statements in the originating post, the content complies with the same standards as communications created by, or on behalf of, the firm.” Ere thou share a link to a resource upon a third-party site, undertake a thorough review to assure the presence of credible information.
#### Teaming with Influencers
It doth behoove investment firms to collaborate with social media influencers and referral programs. Yet, they must exercise utmost care in the selection of influencers. Ere engaging with an influencer, scrutizine their existing social content for compliance violations and reputational risks. Once a bond with an influencer be forged, see to their thorough training. Establish supervisory protocols and maintain records of all their communications related to thy business, encompassing public comments and direct messages. ‘Tis a task demanding more oversight than many an influencer is wont to receive. Should they refuse to abide by the precepts of FINRA, they be unsuitable for thy business.
Thus doth FINRA decree, that the posts and comments of social media influencers be clearly labelled as advertisements. Regulatory Notice 17-18 decrees, “Firms should clearly identify as advertisements any communications that take the form of comments or posts by influencers and include the broker-dealer’s name as well as any other information required for compliance with Rule 2210.”
#### The Perils of Making Improper Claims
Social media, though seeming a platform of casual interaction with potential clients, doth not exempt thee from the content standards expounded in FINRA Rule 2210 on Communications with the Public. The expectations of social media content as per FINRA Rule 2210 encompass:
– The balance and completeness of social content.
– The prohibition of false or exaggerated claims.
– The proscription against predicting or projecting performance.
### Consequences of Violations Upon Social Media
The infractions of FINRA regulations upon social media be met with an enforcement process, as per the annals of FINRA itself. The disciplinary actions may range from a Cautionary Action to a banishment from the brokerage industry, though the latter pertains solely to cases of grave misconduct. Other sanctions include fines and suspensions. Yet, hold fast, for there exist potential individual sanctions for violations of approval, review, recordkeeping, and filing, as per the FINRA Sanctions Guidelines. And for firms, the selfsame transgressions may culminate in fines ranging betwixt $5,000 and $80,000, as noted in the FINRA Sanctions Guidelines.
Consider, as an illustration, a real-world example of disciplinary action. In the December of 2022, FINRA did discipline a General Securities Representative, fining him $5,000 and imposing upon him a suspension of ten business days due to a series of posts upon his public Facebook Page. The text of these posts, cited by FINRA in its decree, included proclamations about performance lacking factual substantiation for evaluation, failure to provide appropriate disclosures for options-related matters, and the absence of review by a firm principal or submission to FINRA’s Advertising Regulation Department.
### Crafting a Social Media Presence Adherent to FINRA Standards
Whilst daunting it may seem, by implementing the requisite procedures, thou can ensure thy company abides by the rules of FINRA upon the realm of social media.
#### 1. Grasp the Regulations
Aye, be well-acquainted with the regulations imposed by FINRA that govern social media channels. The focal points to consider whilst devising thy social media strategy encompass:
– Recordkeeping and filing requirements
– Approval, supervision, and review requisites
– Communications regulations
– Directives regarding testimonials, influencers, and social ads
– Norms pertaining to the adoption of and linking to third-party content
For an enhanced understanding of FINRA regulations regarding social media, delve deep into Regulatory Notice 17-18.
#### 2. Educate Thy Team
Amongst the paramount considerations for thy team is the distinction between the personal and business utility of social media. Regulatory Notice 11-39 expressly stipulates, “A firm’s policies and procedures must include training and education of its associated persons regarding the differences between business and nonbusiness communications and the measures required to ensure that any business communication made by associated persons is retained, retrievable and supervised.” And behold, the Sanctions Guidelines identify “adequate training and educational initiatives” as a principal factor in resolving violations. Regular training in the arena of FINRA social media compliance and the latest trends therein doth shield thy brand.
#### 3. Restrict Access to Thy Social Accounts
Beware the perils of unfettered access to thy social accounts, for such oversight may lead to a plethora of FINRA violations upon social media. Supervision lapse, dissemination of misleading statements, or breaches of customer data—such risks lurk within each social account.
#### 4. Establish Lucid Guidelines for Social Media
Guidelines for social media form a crucial document for any brand, and for financial services brands, a document of paramount importance. Thy social media guidelines ought to encompass:
– Disclosure and transparency directives
– Privacy regulations
– Cyber safety protocols
– Inclusive guidelines on harassment
– Copyright and trademark statutes
Firms subject to FINRA decrees should institute detailed procedures for supervision, approval, and archiving. Verily, a FINRA social media policy stands as a prominent consideration within the Sanctions Guidelines.
#### 5. Forge a Treasury of Content
Upon approval of thy content, incorporate it into a content library. Herein lies a reservoir of resources for thy team, reducing the need for extensive approvals for new content. As per the Suitability Rules, firms should, “Prohibit interactive electronic communications that recommend specific products unless a registered principal has previously approved the content, or the recommendation conforms to a previously approved template.”
#### 6. Scrutinize Content for Compliance ere Publishing
Every social post must endure a compliance review ere its dissemination. Yet, let not compliance experts squander their efforts on recurring basic compliance issues. Through training, shall ye diminish compliance issues ere content enters the approval process. Another avenue to abate compliance revisions is the utilization of an automated compliance tool such as ProofPoint.
#### 7. Uphold Exemplary Archives and Records
Pray that thou need never undergo a regulatory audit. But should such an ordeal befall thee, the necessity of records and archives for all thy social media activities and communications shall become evident.
Let this be a guidepost for thee as thou navigate the treacherous waters of social media compliance as ordained by FINRA. Embark on this odyssey with caution and meticulous foresight, that thy social media presence may stand firmly in accord with the laws and regulations set forth by FINRA.
