With technology changing almost overnight, regulators face the difficult task of overseeing new forms of communication. In April 2017, FINRA published Regulatory Notice 17-18 which provides guidance regarding the application of its rules to social networking websites and business communications. Although the guidance is of particular interest to Registered Representatives (“RRs”), Investment Adviser Representatives might also gain insight regarding how regulators view emerging technologies and communications innovations. Nevertheless, FINRA’s views do not necessarily represent the positions that the SEC and/or state securities regulators will take in similar situations.
In the Regulatory Notice, FINRA observed that some investors want to interact with RRs using text messaging applications (“apps”) and chat services. FINRA made it clear that firms must be able to retain records of business-related communications made through text messaging apps and chat services. The content of the communication determines which of those records must be retained.
FINRA Rule 2210 governs broker-dealers’ communications with the public and includes retail, as well as institutional investors. Regulatory Notice 17-18 clarified that a communication by an associated person is only subject to Rule 2210 if the content relates to the firm’s products or services. Therefore, if an associated person shares or links to content such as the firm’s sponsorship of a charity event or a human interest article, it would not be subject to Rule 2210.
The Regulatory Notice warned firms that when they share or link to specific content, they are adopting it. They become responsible for ensuring that the statements in the original post comply with the same standards that would apply if the firm created the communication. A broker-dealer would not, however, be responsible for content linked to in the original post unless the firm had influence or control over its creation.
Native advertising is typically defined as content that looks like news, articles, product reviews, entertainment and the other material that surround it online. Firms using native advertising must ensure that the communications are fair, balanced and not misleading. Native advertising must prominently disclose the firm’s name. It must accurately describe the relationship between the broker-dealer and any other individual or entity mentioned. In addition, the advertisement must disclose whether the products or services referred to are offered by the firm. Native advertising is not inherently misleading, but it can be without the appropriate disclosures.
The Regulatory Notice deals with several other social media and digital communications issues. It can be found at http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf.
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