The Regulator’s New Dilemma: Online Social Media

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The Securities and Exchange Commission (SEC) began taking a closer look at the financial advisers’ use of social media and social networking.     Meanwhile, Financial Industry Regulatory Authority Inc.’s Social Networking Task Force is scheduled to discuss whether it needs to update its guidance on how advisers should use social-networking sites. 

A little more than a year ago Financial Industry Regulatory Authority (FINRA) issued its first regulatory guidance on how brokers should use social media.    Although the notice was helpful, the advisers are still cautious about employing social networking until regulators come up with more-specific clarifications of what is allowed.     

According to various sources, the SEC has asked advisers for documentation as to how they use social-media sites such as Facebook, Flickr, LinkedIn, Twitter and YouTube, as well as blogs.  The SEC also is asking for information about advisers’ policies that govern how their employees use social media.     The SEC’s goal is to focus on making sure that advisers aren’t using these sites to promise investor returns or engage in other illicit activities.   

One of the main issues for both sides is what constitutes personal, versus professional use of social media.  

The advisers would welcome some explanation as to how FINRA’s guidance, which essentially states that marketing services through social media is advertising, applies to different types of social-networking sites such as LinkedIn.      For example, advisers need clear guidance if their LinkedIn profiles need to be re-approved by their compliance departments, because they could be construed as marketing.

According to some experts, despite the fact that both agencies are taking a closer look at social media, it is doubtful that the SEC will come out with rules on the issue, given everything else that the regulators have on their plate.    

However, other experts argue that given rapid growing popularity of social media for both personal and professional purposes, the SEC may feel more pressure to come out with rules.

Most likely the rule will put an additional hardship on firms with regard to record keeping that will not be limited to e-mails only.    Thus, if the adviser is communicating with a customer or a broker at another firm on one of these media outlets, the adviser may be required to maintain those records.     If that is the case, firms will need to have the sophisticated infrastructure and additional compliance policies in place to do that.

Anna Timone (195 Posts)


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