Social media can be a powerful tool for brokers and broker dealers. The ability to reach out and instantly interact with current or potential customers is an alluring opportunity for many brokers. Social media can be used positively but there are some steps that brokers should take to ensure that they do not run afoul of FINRA and NASD regulations about the use of social media.
Recently, FINRA fined a broker $15,000 for tweets promoting a security that he owned. He did not disclose that he owned the securities in his tweets. The lack of including this information may have been a mere oversight on the part of the broker but it still highlights the need for understanding and complying with the rules set in place by FINRA and the NASD in regards to the information contained in social media posts. FINRA treats these sorts of posts like communications through other types of media. The FINRA rules include the following requirements for broker communications with the public through social media:
- Supervision – Firms must supervise social media communications (as noted below) under FINRA Rule 2210 and NASD Rule 3010.
- Suitability – Under FINRA Rule 2111, firms must confirm that every “recommendation” for a security that is communicated through social media is suitable for every investor to whom it is made.
- Recordkeeping – Firms that communicate through social media must keep records of those communications under FINRA Rule 4510 and Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934.
FINRA has done at least an adequate job in trying to update their rules on communications through social media postings. For instance, FINRA has distinguished between blog posts, which are relatively static, and tweets, which can be more interactive. For static communications, such as a blog post, FINRA requires a registered principle of the firm to review and approve the posting before it is publicly posted to a website. For interactive communications, such as a tweet, no prior approval is required but, according to FINRA’s rules, “firms must supervise these interactive electronic communications under NASD Rule 3010 in a manner reasonable designed to ensure that they do not violate the content requirements of FINRA’s communication rules.” And for third party posts to social media pages such as Facebook pages and blogs, FINRA will not attribute posts to a firm unless the personnel of the firm attributed to the posting or adopted or endorsed the content of the posting. The supervision requirements are those that are the most difficult to consistently maintain and will require the watchful eye of a firm employee to implement.
If a broker or their firm is considering using social media to promote themselves or to more directly interact with customers or potential customers it would be wise to begin to think through a policy that would create guidelines for the use of social media. Clear guidelines will make it much less likely that a stray social media posting draws the ire of FINRA regulators.
To learn more about Richard Frankowski, visit The Frankowski Firm.
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