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FINRA Tells Brokers: Supervise Social Media Use

The Financial Industry Regulatory Authority -- known by most as FINRA -- issued an advisory yesterday telling securities firms and brokers that they are required to supervise and retain records of their employees' blogging and social media use.

The advisory, Regulatory Notice 10-06, came out of a task force FINRA created in September to consider how investment firms could use social media in their businesses while also ensuring protection of investors. "The goal of this Notice," FINRA said, "is to ensure that -- as the use of social media sites increases over time -- investors are protected from false or misleading claims and representations, and firms are able to effectively and appropriately supervise their associated persons' participation in these sites."

Among the requirements spelled out in the notice (which is in the form of questions and answers) are these:

  • Firms must retain records of their employees' business-related communications through social media sites.
  • Firms must exercise caution to avoid making an investment recommendation made through social media that is not suitable for every investor who may read it.
  • Firms should consider prohibiting all social media activity that recommends a specific investment product.
  • A registered representative's "static" postings to a blog must be pre-approved by a supervisor.
  • Real-time, interactive messages on blogs and social media sites need not be preapproved, but must be supervised.
  • All static content on a social media site, such as a user's profile, but be approved by a supervisor before it is posted.
  • With regard to supervision of "interactive" communications, firms need not read every message, but "may employ risk-based principles" to decide the appropriate extent of review.

Coincidentally, Doug Cornelius had a post last week on precisely this issue at his blog Compliance Building, where he reported on a recent webinar addressing the challenges for broker-dealers and investment advisers in using social media. "You have to fit these tools into the established regulatory frameworks," he wrote. That is essentially what FINRA attempts to do in yesterday's notice.

Meanwhile, FINRA is conducting its own webinar covering this on Feb. 3, Compliance Considerations for Social Networking Sites.

Posted by Robert J. Ambrogi on January 26, 2010 at 01:15 PM | Permalink | Comments (4)


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