How FINRA Is Regulating Social Media

Regulating Social Media

In today’s busy world full of technological advancements, it’s becoming increasingly important to ensure that investors are protected from false or misleading claims, exaggerated statements, and material omissions when social media is used as a means of communication. Although the different forms of social media have grown in popularity, FINRA’s rules regarding communication with the public apply in certain situations. But how should firms be regulating social media?

Firms must be diligent in educating their personnel on the difference between personal and business uses of social media. Interestingly, FINRA’s rules don’t apply to an associate personal regulating of social media

Principal Supervision

If a registered representative (RR) intends to use any social media site for business communication with clients, a principal must provide approval prior to its use. The principal must review the proposed social media site in the form in which it will be displayed.

Retail Communication

Most social media sites (e.g., LinkedIn, Facebook, and Twitter)  is considered retail communication but is treated in the same manner as correspondence. In other words, they’re only required to be reviewed or supervised by the firm. These communications are not required to be filed with FINRA.

Recordkeeping

Firms are required to maintain records of any communication that its registered persons disseminate through social media for business purposes (not personal use).Since this rule applies to any type of device that’s used by an RR (e.g., a smart phone or tablet), if a personal device is used for business communication, the recordkeeping rule applies.

Suitability

FINRA’s suitability rules apply to any recommendations that are made through social media websites. In addition, if an RR uses social media to make a recommendation, a registered principal is required to preapprove the content.

Third-Party Posts

If a third-party posts a business-related communication on an associated person’s personal social media site (e.g., asks a question about a specific security), the associated person is permitted to respond as long as there’s no violation of the firm’s policies regarding participation on a personal social media site.

Linking to Third-Party Websites

Firms and their RRs are prohibited from establishing a link to any third-party website that it knows or has reason to know contains false or misleading content.

Personal Use

RRs may use text messaging and chat services with their clients as long as their firms are able to review, supervise, and retain records.

Testimonials

According to FINRA, any unsolicited third-party opinion posts on social media are not considered “testimonials.” However, if the firm “likes” or “shares” a comment, then the firm is considered to have “adopted” it and is now responsible for it and subject to all communication rules.

 

Testimonials