Broker CCOs get Finra answers on social media

May 11, 2017
SROs guidance addresses tricky topics such as testimonials, hyperlinks and native advertising

Chief compliance officers (CCOs) at broker-dealers have received new insight into regulators’ thinking on how their firms should approach the thorny topic of social media and other new technologies. The advice includes some reassurance on the use of native advertising and a cautious stance on hyperlinks, related content and testimonials.

The challenge for firms is that, although they and their employees want to use platforms such as Twitter and LinkedIn to promote their products and services, they also risk running afoul of rules governing what they can and cannot say – and ensuring claims are accurate – when marketing.

CCOs have in recent years taken a variety of steps to try to balance these competing demands; for example, by limiting brokers and advisers to using template or pre-approved communications. Regulators have also issued guidance trying to address the issue. But professionals continue to have questions in areas including what third-party content firms are deemed to be associated with, and therefore responsible for.

In an effort to answer some of these questions, the Financial Industry Regulatory Authority (Finra) recently issued its latest round of guidance regarding the application of its rules governing communications with the public to digital communications.

For example, officials note that social networking websites may allow individuals who have connected to another user on the network to give an opinion of, or comment on, the user’s professional capabilities. If the user is a registered representative who has established a business-related site on the social network that is supervised and retained by the broker-dealer, a CCO might ask whether these opinions or comments are considered testimonials for the purposes of Finra’s communications rule – Rule 2210 – and therefore must include certain disclosure requirements.

On the plus side for firms, officials at the self-regulatory organization (SRO) say Finra ‘does not regard unsolicited third-party opinions or comments posted on a social network to be communications of the broker-dealer or the representative for purposes of Rule 2210.’

Similarly, a third party can post unsolicited favorable comments about a registered representative on that employee’s business-use social media website, and the representative may then like or share the comments. But by doing so, he or she has ‘adopted them’ making them therefore subject to the SRO’s communications rules, including the bar on misleading or incomplete statements or claims and supervision and recordkeeping requirements, according to officials.

Finra warns that, as with social media, every firm that communicates or allows its associated people to communicate about its business via a text-messaging app or chat service must first ensure it can retain records of those communications.

Meanwhile, if an associated person of a firm in a personal communication shares or links to content that the firm makes available in its communications that does not concern the firm’s products or services, the associated person’s communication would not be subject to Rule 2210, according to the new guidance. Whether a communication by an associated person is subject to the rule depends on whether the content relates to the products or services of the firm, officials say.

The guidance also includes the question: if a firm shares or links to specific content posted by an independent third party such as an article or video, has the firm adopted the content? According to the SRO, sharing or linking to specific content means the firm has adopted the content and is therefore responsible for ensuring that, when read in context with the statements in the originating post, the content complies with the same standards as communications created by, or on behalf of, the firm.

A broker-dealer that simply shares or links to content that contains links would not be responsible for the content available at such links, officials say. But additional facts and circumstances will determine whether the firm has adopted or become ‘entangled’ with such content, they add. In general, if a firm shares or links to content that in turn links to other content over which the firm has no influence or control, the firm would not be deemed to have adopted the other content. But if a firm shares or links to content that in turn links to other content over which the firm has influence or control, the firm would be deemed to have adopted that other content.

The guidance further poses the question: if a firm includes on its website a link to a section of an independent third-party website, has it adopted the content of that other site? The answer, officials say, depends on factors such as whether the link is ‘ongoing’ and whether the firm has influence or control over the content of the third-party site. The firm has not adopted the content if the link is ‘ongoing’, meaning that:

  • The link is continuously available to investors that visit the firm’s site
  • Investors have access to the linked site whether or not it contains favorable material about the firm
  • The linked site could be updated or changed by the independent third party and investors would nonetheless be able to use the link.

If the firm has any influence or control over the content of the third-party site, however, then it is viewed as being entangled with that content, officials write. Language introducing the ongoing link must conform to the content standards of the communications rules, including the prohibition of misleading or inaccurate statements or claims.

In addition, the guidance addresses the issue of native advertising, which is broadly thought of as content that bears a similarity to the news, feature articles, product reviews, entertainment and other material that surrounds it online. For example, it may be a video or article posted by an advertiser on an independent publisher’s site that is presented alongside, and in a manner similar to, content posted by the publisher.

The question, officials note, is whether native advertising is therefore inherently misleading under Finra’s communications rules. The good news for those wishing to use this form of promotion is that, according to the SRO, firms may use native advertising that complies with the applicable provisions of Rule 2210, including the requirements that firms’ communications be fair, balanced and not misleading.

‘In particular, native advertising must prominently disclose the firm’s name, reflect accurately any relationship between the firm and any other entity or individual who is also named, and reflect whether mentioned products or services are offered by the firm as required by Rule 2210(d)(3),’ officials say. 

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