After releasing their regulatory notice 10-06, FINRA conducted a webinar including interactive Q&A session on February 3, 2010 to expound on and hopefully clarify their guidance on the use of blogs and social networking sites for communications sponsored by a financial services firm or a registered representative.

Read on to see all you missed and get spotlights of the webinar content and Q&A.

Background

In an earlier article, provided here, I covered my initial reactions and key highlights of FINRA’s regulatory position on social media for the Investment Management and Asset Management industry.

On February 3, 2010, almost 700 people registered for FINRA’s webinar on Social Media and notice 10-06. There were likely more than that number of actual participants as firms shared registration access across numerous participants. FINRA’s webinar team was chaired by Thomas A. Pappas (Moderator), who is Vice President and Director of FINRA’s Advertising Regulation Department. Also participating from FINRA were Joseph E. Price a Senior Vice President, Corporate Financing/Advertising Regulation and Amy C. Sochard a Director, Programs and Investigations, in FINRA’s Advertising Regulation Department.

At times, the discussion between FINRA’s team was lively, but in the end, 7 main points were spotlighted in the FINRA material and ensuing Q&A.

The spotlights were discussed at an superficial level and each firm needs to evaluate the sites they or their representatives are participating in and determine what the firm’s policy will be on supervision, record keeping, prior approval etc.

7 Main Spotlights

1. Recordkeeping Responsibilities:
   • SEC Rules 17a-3 and 17a-4 and NASD Rule 3110 apply and firms must retain records of communications related to their “business as such.”
   • Technology is being developed by industry vendors but each firm must determine whether any particular technology provides the necessary retention and retrieval functions to comply.
2. Suitability Responsibilities:
   • Standard suitability rules apply to recommendations made through social media Web sites. NASD Notice to Members 01-23 provides guidance regarding online suitability.
   • Recommendation of specific products subject to a firm’s existing rules which include required disclosures. Firm’s can and should consider prohibiting interactive electronic communications that recommend specific products.
3. Types of Interactive Electronic Forms:
   • Unscripted participation in an interactive electronic forum such as a chat room or online seminar is the same as a “public appearance” based on the definition of “public appearance” in NASD Rule 2210.
   • Public appearances must be supervised, but do not require prior, written approval of a registered principal. Content posted on a social media Web site may be treated as a public appearance depending on the facts and circumstances.
4. Blogs:
   • Static postings are consider advertisements, but real-time, interactive communications with third parties on a blog would be considered participation in an interactive electronic forum, the same as a “public appearance”.
   • Frequency of content updates to static postings does not play a role in distinguishing between advertisements versus “public appearance”.
5. Social Networking Sites:
   • Profile, background or wall information = advertisements, but interactive communications via a social networking site are considered a “public appearance”.
   • Time elapsed on an interactive communication does not make that content static. For example, if a real-time tweet is up for a long period of time, that tweet is still considered a “public appearance”.
   • Some social networking sites may enable communications from Rep-to-Rep or Rep-to-Broker/Dealer. These communications are covered by NASD rule 22-11, defining institutional communications, and provides for more flexible compliance guidelines.
6. Supervision of Social Media Sites:
   
   • Prior principal approval is not required, but firms must supervise these communications with proper procedures similar to those outlined for electronic correspondence in FINRA Regulatory Notice 07-59.
   • If a firm wants to take a conservative approach, they can require principal review of some or all interactive electronic communications prior to use. It is up to each and every firm to make that judgement call.
7. Third-Party Posts:
   • Third-party posts are not subject to FINRA’s advertising rules unless the post is attributable to the firm due to preparation of the third-party post’s content; or, explicitly endorsing or approving the content.
   • “re-Tweeting”, “Liking” or “Voting For” a third party post would be considered endorsement by FINRA.
   • If a registered rep requests a third party to comment on or provide positive feedback on content, this is equal to entanglement by the FINRA regulations.

Hopefully you have gotten through all 7 main points spotlights. I look forward to continuing my commentary and investigation into the use of social media in the Investment Management and Asset Management industry.

In the meantime, how is your firm reacting?
Do you think FINRA’s notice and webinar were positive or negative?