FINRA’s Targeted Examination Letter on Social Media Use

wallpapers-red-bull-s-eye-target-psdgraphics-x-1June 2013,  has seen FINRA publish another targeted examination letter — this time aimed at members and associated persons use of social media.  FINRA uses these letters, primarily, to educate member firms about how it uses targeted exams, known as sweeps, to gather insights on member regulatory responses on emerging issues, and carry out investigations.

Relying on FINRA Rule 2210(c)(6) which subjects member firms’  communications (including electronic)  to periodic spot-check procedures, FINRA’s Advertising Regulation Department is asking firms and their associated persons for information about how they use social media (e.g., Facebook, Twitter, LinkedIn, blogs).  Questions and information requests include:

  • how a firm’s social media (e.g., Facebook, Twitter, LinkedIn, blogs) platform is being used as part of its business purpose; 
  • URL information for all social media sites the firm uses; date of first use, and the identity of those who post or update content;
  • how a firm’s associated persons are using social media;
  • a firm’s written supervisory procedures covering the production, approval and distribution of social media communications;
  • what measures firms adopt to monitor compliance with social media policies (e.g., training meetings, annual certification, technology);
  • a list of a firm’s top 20 producing registered representatives (based on commissioned sales) who used social media for business purposes to interact with retail investors, including the type media they use, their name, CRD number, and dollar amount of sales made and commissions earned during a specific period.

FINRA says its  selection of firms for the targeted exam is based on a number of factors, including the “level and nature of business activity in a particular area, customer complaints and regulatory history, and prior examination findings.”

The letter demonstrates the attention broker-dealer’s should pay to both adopting policies and procedures and supervising interactive electronic communications to ensure that content requirements of FINRA’s communications rules are not violated.  In doing so, members should review FINRA’s Regulatory Notices 07-59, 10-06,  11-39 and FINRA Conduct Rules 2210 and 3010.

 

Author: Dexter Johnson

The author is a an attorney who for the past 14 years has concentrated his practice in representing, successfully, investment advisers, broker-dealers, corporations and individuals who are subject to SEC, FINRA, State or other regulations and who may be the subject of regulatory examination, review or investigation. He formerly worked at the SEC. His regulatory and litigation experience has encompassed virtually every type of securities issue in the industry. He has also negotiated favorable outcomes in many of these matters for his clients.