As the world moves deeper into the digital age, social media has become a major channel for sharing information and marketing services - and the financial industry is no exception. Firms and registered representatives use social platforms to engage clients, promote products, and comment on markets. Investors also use message boards and timelines to discuss investing ideas and experiences. Because of this, FINRA has issued guidelines and rules that apply to social media.
Most of the regulations covered in the previous chapter still apply to social media communications. In general:
Financial professionals still can’t make false, misleading, or exaggerated statements, and they can’t omit material facts. Whether the message appears on paper, a billboard, or Twitter, the same core standards apply.
Social media and internet communications do have some unique features compared with traditional media, so you’ll want to know how FINRA addresses them. FINRA specifically highlights the following:
Social media posts must be retained for 3 years, and records created within the most recent 2 years must be easily accessible. This matches the standard recordkeeping requirement for communications.
FINRA also calls out an issue that comes up often with social media:
FINRA’s advertising rules and guidance do not apply to an associated person’s personal use of social media. However, firms must educate their personnel on the difference between personal and business uses of social media. If firm personnel use a personal site for business, then this may result in a situation where the firm is unable to retain records of business-related communications as required.
In other words, a representative’s purely personal social media activity isn’t regulated the same way as business communications. A firm doesn’t need to retain personal posts that have nothing to do with the business.
The complication is that a “personal” account can still be used for business. For example, a representative might post a TikTok discussing the firm’s products or services. Firms must train personnel to understand where the line is between personal and business content. If FINRA determines that a representative’s personal social media crossed into business use, both the representative and the firm could face regulatory consequences.
Firms must have a supervisory system for business-related social media activity. Representatives often use web-based platforms to communicate with current and prospective clients, and firms are responsible for supervising those communications to ensure compliance.
Before a representative uses a social media platform for business purposes, the platform must be vetted and reviewed by a registered principal (supervisor). The goal is to confirm that FINRA rules and guidelines can be followed on that platform. Most major platforms (Twitter, Facebook, Instagram, TikTok, and YouTube) have already been reviewed by many firms. If a representative wants to use a new platform, principal approval is required before using it.
FINRA also groups social media activity into two categories:
Static content
FINRA describes static content as:
Typically posted for the longer term and lacks the immediacy of a real-time conversation
Examples include blogs and social media profiles. FINRA generally treats static content like retail communications. In most cases, it must be pre-approved by a principal before posting and may need to be filed with FINRA.
Interactive communications
FINRA describes interactive communications as:
Typically real-time and involve a dialog with third parties
Examples include posts on interactive forums (e.g. Reddit), chat rooms, Tweets, Facebook posts, comments on other social media posts, and direct messages (DMs). FINRA typically treats these communications like correspondence*. That means no principal pre-approval or FINRA filing is required, but the communications are subject to periodic review**.
*To be regulated as correspondence, it may not be viewed by more than 25 retail investors in a 30-day period. If this occurs, the content would be considered retail communication. Direct messages and small chats are likely to be regulated as correspondence, while public posts are generally regulated as retail communication.
**Periodic review can mean one of two things. First, registered principals within the firm should review these communications regularly. Most firms maintain technology to flag communications with certain keywords and have their registered principals review communications selected at random. Second, FINRA can request to view these documents, which would likely occur if they received a complaint from an investor.
Firms are also required to maintain supervisory procedures that:
Firms and representatives often repost third-party content or link to third-party websites. For example, a brokerage firm might tweet a link to a Yahoo Finance article about market activity. FINRA addresses this because sharing third-party content can make the firm responsible for it.
If a firm adopts or entangles itself with third-party content, that content becomes subject to the firm’s recordkeeping requirements (3 years, with the most recent 2 years easily accessible). FINRA defines adoption and entanglement as follows:
Adoption occurs when a firm endorses or approves third-party content
An example of adoption is a firm retweeting a financial blog with commentary (e.g. “Check out this interesting piece on the current state of the market”)
Entanglement occurs when the firm involves itself with the preparation of the third-party post
An example of entanglement is a firm sharing a paid review of its products or services on TikTok.
In either case, the shared material must be vetted, reviewed, and treated essentially as if it were the firm’s own content.
Similar expectations apply when a firm links to a third-party website:
Firms may not link to any third-party site that the firm knows or has reason to know contains false or misleading content. A firm should not include a link on its website if there are any red flags that indicate the linked site contains false or misleading content
If a firm or representative recommends a securities-related product or service on social media, FINRA’s suitability-related expectations still apply. Firms must follow two general guidelines.
First, the firm must have an adequate supervisory system to monitor these communications (as with other social media activity). Second, recommendations through social media are generally prohibited unless they meet one of the following criteria:
*An example of a previously approved template would include a pre-approved Facebook post recommending a wealth management service to high net worth individuals. Representatives could simply repost this content in the future without needing to gain pre-approval again.
FINRA applies the same communication standards used for general communications to social media. These requirements should look familiar:
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