In a previous blog, we discussed the Financial Industry Regulatory Authority’s (FINRA’s) proposed Rule 2210 regarding social media. FINRA responded to comments by amending the proposed rule, and filing it with the SEC for approval. The amended rule was designed to respond to concerns about whether certain types of communications should be considered correspondence or public appearances.
In the rule as originally proposed, interactive social media communications would be classified as public appearances such as television interviews, and would have to be filed with regulators. As a result of comments to the proposal, FINRA amended the rule to exclude messages on online interactive forums from a post-use filing requirement.
FINRA explains that the reasoning behind this change is due to the belief that participation in online forums occur in real-time, that it is not practical to require pre-use approval of such postings by a principal, and that these types of communications should be classified as retail communications. According to FINRA, “retail communication would include any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. ‘Retail investor would include any person other than an institutional investor, regardless of whether the person has an account with the member.'” This means that the retail communication category would instead be supervised by broker-dealers in the same manner as correspondence.
There has been a lot of industry support for the changes to the proposed rule. The Securities Industry and Financial Markets Association wrote in a comment letter, “If every member firm is required to monitor and review all of the online postings of all of its registered representatives, and every member firm is required to file those that trigger a filing requirement, the impact upon FINRA is potentially overwhelming.” However, some have criticized the new amendment. For example, those in opposition have offered arguments against the proposed rule by stating that these types of communications are more analogous to physical public appearances. FINRA responded to those comments by claiming that there is a substantial difference between a one time public appearance and communication on the web. A posting on a social media site will remain their indefinitely and it may be viewed by more people than a television interview or a seminar.
Member firms also need to be aware that this exemption will not apply to any filing required under federal law or SEC rules, such as if the nature of the information requires a filing under a different rule then it will still need to be filed. This exemption also is intended only to apply to social media use and other electronic communications, and it is not applicable to e-mails.
Even though this is a less stringent form of regulation, social media posts still need to be supervised. Firms will be responsible for archiving all of the social media messages that their advisers post. Firms should create strong and efficient policies for social media such as training advisers appropriately and making sure that they have the right tools in place to ensure that they can still adequately supervise those using the social media within their firm.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.