In response to industry requests, FINRA recently released guidance on how financial services firms can use social media and other forms of electronic communications while complying with rules and regulations.
To provide additional clarity, Amy Sochard, Senior Director, FINRA Advertising Regulation, moderated a conversation with Marc Gilman, Executive Director, Information Management Law, Morgan Stanley, and Sheelagh Howett, Chief Risk Officer, Cantella & Co., Inc. at the 2017 FINRA Annual Conference earlier this month.
Together, they explored developments in social media and provided some insight on how firms are interpreting the latest Guidance. Here is the first of two-part post on highlights from the session.
1) Avoiding Social Media Risk
According to Gilman, the key to mitigating risk associated with using social media is “to have global policies for the general employee population plus more granular polices for those who are leveraging these platforms for business use”. This requires evaluating the features of the networks, documenting which features can be used and why, and indicating additional approval flows as necessary. Training is important to ensure that folks <associated persons> understand what’s required. For some, it will be the first time they’re doing social, so they need to understand the distinction between personal and business use, how the networks are used, what the functionalities do, strategies and tips for sharing content and using social media appropriately, he added.
2) BYOD And Compliance
Bring Your Own Device (BYOD) is increasingly prevalent at financial services firms. Firms are even beginning to discuss moving away from supplying laptops and computers to their employees, said Sochard. Regardless, Howett stressed “ the content of the communication determines whether or not it’s a business communication, not the actual device being used. ” If you send an email from your mobile device, the same retention and supervisory concerns apply to that email as it would if it was coming from your desktop <or corporate provided device>. That also applies to electronic communications such as social media posting or texting. Gilman added that one of the biggest challenges with BYOD is the potential confusion about what’s appropriate and what’s not, and making those bright white lines clear to employees as they start to use the platforms. Again, training is key.
3) Disclosures And Mobile Technology
Proper disclosures is an area of great interest to FINRA right now, said Sochard. FINRA is taking steps to determine whether there are ways to improve the quality of disclosures so that they are understandable to investors and aren’t just "that fine print at the bottom of the communication that everybody ignores". She conveyed that, originally, there were some concerns at FINRA about apps because it was thought that investors would not be able to read disclosures due to the small screens on smartphones. However apps afford an opportunity to provide investors with high quality disclosures, just in time, when they need them. She concluded that mobile technology offers benefits in the area of disclosures and FINRA hopes to provide some guidance that will be helpful to firms going forward.
4) Text Messaging And RecordKeeping
In response to requests from compliance departments, FINRA recently provided explicit guidance pertaining to text messaging in the recent Regulatory Notice 17-18. Per Sochard, “if you are going to use any type of communication medium for the firm’s business, then firms need to be able to retain records of that communication’s medium”. These recordkeeping requirements present challenges to allowing associated persons to text. “Texting is not the same as sending an email. People don’t spell out full words, so building a lexicon isn’t as easy as you would think. Also, what type of disclosures need to be on a text message?” asked Howett. “It gets back to education. As an advisor, what do you do if you receive a text from a client and your firm does not permit text messages? We can’t stress enough the whole education factor” added Gilman. Some firms have policies to instruct associated persons to move the text conversation with clients to an approved system, such as email. “Consider having very directive language with what to do when people contact you in a way that can’t be archived. That’s the approach that firms took with social media. It’s now moved over into the messaging space” concluded Sochard.
5) The Regulatory Life-cycle of Live Streaming
Sochard explained that “When we were planning this panel, we said we know that somewhere, somehow, among the 600,000 plus registered representatives, there is somebody using live streaming technology in their business. We think it is around the corner, but not sure it’s completely arrived. We thought it would be helpful to outline what we would consider the regulatory life-cycle of a streaming communication”. In this way, firms can begin to think about how to develop policies and procedures to meet the unique regulatory requirements of live streaming over time. Per Sochard, here is the life-cycle of live streaming:
- Public appearance: Content being streamed <when the presentation is live> on social media or another platform, would be regarded as a public appearance. There is a special section in FINRA Rule 2210 that deals with public appearances. The content standards for public appearances are a little less stringent and the primary consideration is that firms need policies and procedures for supervising their public appearances. There cannot be any misleading statements or claims and everything has to be fair and balanced. There are also some disclosures if there’s a recommendation of securities and for any conflicts of interest.
- Interactive: Once the session is over, content will remain on the social media platform and it can be accessed by the friends and family or clients at a later time and it will be in the interactive feed on social media platforms. At that point, from FINRA’s standpoint, it would probably be regarded as an interactive communication. It would need to be supervised in the same manner that you would expect to supervise your other interactive communications. However, because you can’t do a lexicon search on video, you need to include procedures to surveil those videos in your policies.
- Static: Some of the platforms allow you to upload the video to YouTube or your regular website. At this point, the communication is transformed to a static retail communication and would be subject to the standards for Communications with the Public, including the potential requirement to have a principal of the firm approve it before it’s used. It may even be subject to filing requirements, particularly if it concerns a specific investment or security, concluded Sochard.
When it comes to live streaming, Howett added “while you may not do it today, you may get a request tomorrow. You need to be able to know what it’s about and how to treat it.”
