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Financial Services Regulatory Risk in Social Media

By  Financial Services Staff Writer Financial Services Staff Writer  on 2014-05-12 08:55:00  |  Featured in  Financial Services
Financial Services Staff Writer
Posted By Financial Services Staff Writer
in Financial Services
on 2014-05-12 08:55:00

Remaining in compliance with all applicable federal regulations and guidelines concerning the use of social media is critical to your ongoing success in the financial industry. Stricter regulatory requirements apply in the finance sector, so it is essential to identify the specific regulations relating to social media communications and to implement an organized plan to maintain compliance with those rules. The Financial Industry Regulatory Authority, better known as FINRA, released Regulatory Notice 11-39 in August 2011 to provide added guidance for financial institutions and to follow up on the information provided in January 2010 in Regulatory Notice 10-06. Notice 11-39 groups regulatory requirements into six basic categories to make it simpler for your financial organization to implement compliance measures for these regulations.

Recordkeeping Requirements

The Securities and Exchange Commission (SEC) provides guidance and regulations on recordkeeping requirements in the financial industry. For business communications transmitted through social networking sites, SEC Rule 17a-4(b) requires that brokers, securities dealers and members of financial institutions retain records in a readily accessible site for a minimum of three years. SEC Rule 17a-4(b)(4) further requires that companies retain originals of all business-oriented correspondence and copies of all outgoing letters and emails within the company and to individuals outside the corporate structure. The electronic communications delivered through social media venues are also subject to these rules if they pertain to the business dealings of the financial company.

Supervisory Requirements

Now a part of FINRA, the National Association of Securities Dealers (NASD) once held responsibility for regulating the U.S. stocks and securities industry. Under NASD Rule 3010, companies must establish supervisory control and responsibility for social media communications. Rule 3010 requires that a registered principal of the business must review proposed social media sites, must ensure compliance with regulatory requirements on the part of the site operator and must evaluate and approve the site once more when it is ready for launch and public release to ensure that no fundamental changes have taken place in the interim period.

Vetting Third-Party Links

NASD Rule 2210 establishes that financial firms are responsible for any false or misleading statements by their representatives or on their websites. Third-party links must be continually vetted to ensure that they do not contain false or misleading financial information that could lead to violations of NASD Rule 2210. Alternatively, you can formally ban the use of third-party links on your corporate social media sites to sidestep the issue altogether.

Data Feeds

Another element that is governed by the guidance contained within NASD Rule 2210 is the inclusion of data feeds on your corporate social media sites. If the information provided in these data feeds is biased, incorrect or misleading, your company may be in violation of Rule 2210. Eliminating these feeds or performing frequent spot checks on their accuracy can keep you in compliance with these important regulatory guidelines.

Suitability Questions

NASD Rule 2310 deals specifically with the suitability of recommendations regarding stocks and securities in the financial marketplace. In general, Rule 2310 requires that financial advisers provide recommendations designed for the specific investor and suited to his or her needs. Making recommendations in public social media networking environments can violate the tenets of NASD Rule 2310 and can result in noncompliance with these federal regulatory requirements.

Fair Disclosure

Companies that routinely release financial information to their shareholders in print or through press releases and news media outlets must comply with SEC Regulation Fair Disclosure (FD). Established in 2000, Regulation FD requires that members of the general public be given access to key information regarding investments and performance at the same time as investors, stakeholders, shareholders and financial advisors. On April 2, 2013, the SEC okayed the use of social media sites for disseminating this key information, provided that the company informed its stockholders in advance using the original method of distribution. For example, if the company had previously released information on its online website, an announcement on the website that links to the social media site would serve as adequate notice of corporate intent to use social media sites for these announcements.

By incorporating solutions for these six regulatory issues into your corporate social media policy, you can ensure a greater degree of compliance and control over these newer forms of public communication while minimizing regulatory risk for your financial institution.

Is your organization facing any of the risks mentioned above?

The Definitive Guide to Social Media Compliance In a Mobile World For the Financial Services Industry
Financial Services Staff Writer

Financial Services Staff Writer


Financial Services Practice team staff writer.

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