New guidance is available from FINRA on how member firms can best comply with FINRA rules governing communications with the public - including social networking sites - while accounting for new technologies.  Since January 2010, when FINRA issued Regulatory Notice 10-06, "Social Media Web Sites," firms have sought clarification on issues such as recordkeeping, supervision, links to 3rd-party sites, and data feeds. 

Today, August 18, FINRA issued Regulatory Notice 11-39, appropriately titled "Guidance on Social Networking Websites and Business Communications," that hopefully fulfills its titled mission. A lengthy Q&A section is included.

Staff Contacts.   Firms are encouraged to direct questions to these FINRA staffers:   Joseph Price, SVP-Advertising Regulation/ Corporate Financing, at (240) 386-4623;  Thomas Pappas, VP-Advertising Regulation, at (240) 386-4553; or Amy Sochard, Director-Advertising Regulation, at (240) 386-4508.

    Topic: Recordkeeping.   The obligations of a firm to keep records of communications made through social media depend on whether the content of the communication constitutes a business communication. Rule 17a-4(b) under the Securities Exchange Act of 1934 (SEA) requires broker-dealers to preserve certain records for a period of not less than three years, the first two in an easily accessible place.1 Among these records, pursuant to SEA Rule 17a-4(b)(4), are “[o]riginals of all communications received and copies of all communications sent (and any approvals thereof) by the member, broker or dealer (including inter-office memoranda and communications) relating to its business as such, including all communications which are subject to rules of a self-regulatory organization of which the member, broker or dealer is a member regarding communications with the public.”2 The SEC has stated that the content of an electronic communication determines whether it must be preserved.

    Topic:  Supervision.   NASD Rule 3010 requires each firm to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable federal securities laws and FINRA rules. As part of this responsibility, a registered principal must review prior to use any social media site that an associated person intends to employ for a business purpose. The registered principal may approve use of the site for a business purpose only if the registered principal has  determined that the associated person can and will comply with all applicable FINRA rules, the federal securities laws, including recordkeeping requirements, and any additional requirements established by the firm. The registered principal must review an associated person’s proposed social media site in the form in which it will be “launched.” Some firms require a registered principal to review the first posting by an associated person on an interactive forum within the site. This approach can help to ensure that the registered principal will be reviewing not only the initial communication, but the social media site itself in its completed design.  FINRA considers unscripted participation in an interactive electronic forum to come within the definition of “public appearance” under NASD Rule 2210. Public appearances do not require prior approval by a registered principal. Firms may adopt risk-based supervisory procedures utilizing post-use review, including sampling and lexicon-based search methodologies, of unscripted participation in an interactive electronic forum. The procedures a firm adopts must be reasonably designed to ensure that interactive electronic communications do not violate FINRA or SEC rules, including the content requirements of NASD Rule 2210, such as the prohibition on misleading statements or claims and the requirement that communications be fair and balanced. A static posting is deemed an“advertisement” under NASD Rule 2210 and therefore  requires a registered principal to approve the posting prior to use.

    Topic:  Links to Third-Party Sites.   Firms may not establish a link to any third-party site that the firm knows or has reason to know contains false or misleading content. A firm should not include a link on its website if there are any red flags that indicate the linked site contains false or misleading content.  Additionally, a firm is responsible under NASD Rule 2210 for content on a linked third-party site if the firm has adopted or has become entangled with its content. For example, a firm may be deemed to have “adopted” third-party content if it indicates on its site that it endorses the content on the third-party site. A firm could be deemed to have become
“entangled” with a third-party site if, for example, it participates in the development of the content on the third-party site.

    Topic:  Data Feeds.   Firms must adopt procedures to manage data feeds into their own websites. FINRA is aware of situations in which firms have received data feeds that were inaccurate. Firms must be familiar with the proficiency of the vendor of the data and its ability to provide data that is accurate as of the time it is presented on the firm’s website. Firms also must understand the criteria followed by vendors in gathering or calculating the types of data that the firm intends to feed into its website, in order to determine whether the vendor is performing this function in a reasonable manner.5 Firms also should regularly review aspects of these data feeds for any red flags that indicate that the data may not be accurate, and should promptly take necessary measures to correct any inaccurate data.

For "Questions & Answers," and further details, go to:   [FINRA RegNote 11-39, August 2011]