Thursday, January 28, 2010


Americans are increasingly using social media websites such as blogs, Linkedin, Facebook, and Twitter. As a result, FINRA has published guidance to member firms seeking to know how the FINRA rules governing communications with the public apply to these social media sites. Back in September 2009, FINRA organized a Social Networking Task Force composed of FINRA staff and industry representatives to discuss how firms and their registered representatives could use social media sites for legitimate business purposes in a manner that ensures investor protection. Regulatory Notice 10-06 was issued as a product of the input from this Task Force in order to guide firms on applying the communications rules to social media sites.

FINRA's stated goal in issuing the Notice is to ensure that investors are protected from false or misleading claims and representations. This way, firms are able to effective and appropriately supervise their associated persons' participation in these sites, while at the same time allowing firms to take advantage of new technology. The Notice does not address the use of social media by individuals solely for personal reasons.

Some of the issues addressed in the Notice are discussed below.

Suitability Responsibilities: If a firm or its personnel recommends a security through a social media site, the broker-dealer must determine that the recommendation is suitable for every investor to whom it is made through that social media site. Whether a particular communication constitutes a "recommendation" for purposes of Rule 2310 will depend on the facts and circumstances of the communication. Moreover, these communications must often include additional disclosure in order to provide the customer with a sound basis for evaluating the facts with respect to the product.

Blogs: Rule 2210 defines "public appearance" to include unscripted participation in an interactive electronic forum such as a chat room or online seminar, and does not require firms to have a registered principal approve in advance the extemporaneous remarks of personnel who participate in public appearances. If a blog is used to engage in real-time interactive communications, FINRA would consider the blog to be an interactive electronic forum that does not require prior principal approval. FINRA considers static postings on blogs to constitute "advertisements" under Rule 2210 such that if a firm or its registered representative sponsors such a blog, it must obtain prior approval of any such posting.

Social Networking Sites: Websites such as Facebook, Twitter, and Linkedin contain both static and interactive content. Static content, such as profile or wall information, must be approved by a registered principal of the firm prior to its posting. The portion of a social networking site that provides for interactive communications constitutes an interactive electronic forum, and firms are not required to have a registered principal approve these communications prior to use.

FINRA noted that every firm should consider the guidance provided by the Notice in the context of its own business and its compliance and supervisory programs. A complete copy of Notice 10-06 can be found here.

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