The landscape of communication has changed
drastically in the past decade. Information has the capability
of widespread reach through the use of various sources. In
particular, social media has become an important channel of
communication. As such, the SEC has recently issued new
guidance that allows financial firms to disseminate market related
news via social media so long as firms alert investors which social
media platforms will be used to deliver such information.
Financial firms’ use of social media must be in compliance with
Regulation FD which “requires companies to distribute material
information in a manner reasonably designed to get that information
out to the general public broadly and non-exclusively…to ensure
that all investors have the ability to gain access to material
information at the same time.”
Another emerging issue in the height of social media
is employee privacy. Recently, various states have made efforts
to curtail employers’ attempts to monitor employees’ personal
Facebook and Twitter accounts. California, Illinois, Maryland,
and Michigan adopted social media privacy laws last year while a
similar law in Utah takes effect in May. Variations of social
media privacy laws have been introduced in 35 states since the
beginning of 2013.
Securities regulators, however, have requested
states to carve out exceptions in such state laws so that certain
financial firms can maintain a close watch of the social media
accounts of its employees in order to monitor whether personal
accounts are being used to give investment advice. Regulators such as
FINRA worry that social media networks can create new channels for
Ponzi schemes and other frauds and ultimately put investors at risk.
According to a survey conducted by American Century Investments,
approximately one third of financial advisers use some form of social
media several times a week to interact with investors.
Before California’s employee-privacy laws took
effect at the start of the year, FINRA and other related groups
requested that either the law be vetoed or an exception carved out
for financial firms. California rejected this request.
California’s law prohibits employers from requiring or requesting
employees’ to: (1) disclose his or her username or password for the
purpose of accessing social media; (2) access personal social media
in the presence of the employer; or (3) divulge any personal social
media. Employees cannot be disciplined, terminated, or
retaliated against for non-compliance if an employer makes such a
request.
Some state laws provide a narrow exception for
employers to conduct legitimate checks of an employee’s personal
social media accounts during a formal investigation of an employee’s
alleged misconduct. Nevertheless, securities regulators and
financial firms would rather get in front of the issue and monitor
employee’s conduct before it rises to the level of a formal
investigation or before the potential harm to investors has been
done.
Securities regulators believe current
employee-privacy laws are at odds with existing rules that require
financial firms to monitor any investment advice that is posted or
tweeted by employees. Financial firms have found themselves
between a rock and a hard place when it comes to the issue of
employee privacy and compliance with regulations and will likely be
faced with deciding whether to violate state law or SEC and FINRA
regulations.
Courts have yet to decide whether FINRA rules will
supersede state law on this matter.
For further guidance on how financial firms can work
within the bounds of state laws while maintaining its obligations to
FINRA contact the experienced attorneys at Cosgrove Law Group, LLC.
No comments:
Post a Comment