The Financial Industry Regulatory Authority (FINRA) moved a step closer to simplifying and clarifying regulations concerning its members’ communications with the public. FINRA is is a government-authorized body that oversees U.S. broker-dealers. Publishing Regulatory Notice 12-29, FINRA fleshed out the details of what exactly would be altered come February 4, 2013, the date that updated rules including FINRA 2210 take effect. As expected, Regulatory Notice 12-29 continues to provide guidance solidifying social media’s status as an important means of communication. It is important to note that, the relationship between FINRA 12-29 and social media guidance previously administered by FINRA, is simplify that 12-29 is announcing a formalization of the existing guidance. In FINRA’s own words, this guidance “codifies a current interpretation of the rules”.
FINRA 12-29 and social media classification
Regulatory Notice 12-29 focuses on the reduction of regulatory communication categories from six to three. Of greatest relevance to social media is the “retail communication” classification. Defined as “any written (including electronic) communication” distributed to 25 or more investors, social media interactions like Facebook posts and tweets will fall under this new category. Importantly, the regulatory notice exempts “any retail communication that is posted on an online interactive electronic forum” from pre-use approval requirements, meaning that updates on Facebook and Twitter do not need to be approved prior to posting. Instead, social media communications should be managed post-review similar to email. Pre-approval requirements around social media have been a source of confusion for a long time, with many broker-dealers still enforcing pre-approval for all communications. FINRA 12-29 and social media guidance previously provided by FINRA make it abundantly clear that pre-approval is not required for the majority of interactive social media communications. Of course, broker-dealers can still opt to pre-review as part of their own compliance strategy until they become more comfortable with the interactive nature of social media.
FINRA 12-29 and social media record keeping
Additionally, because social media interactions will firmly classified under the retail communications classification, it is clear that firms must continue to comply with NASD Rule 2110(b)(4)(A) concerning record keeping requirements. It is critical for firms to maintain a copy of the communication, dates of use, and the name of the person who distribute the communication, among other data.
So although this release does not come as a surprise, understanding this re-classification of communications is important for maintaining compliance with FINRA. FINRA members using social media generally don’t have to pre-approve posts, but rather monitor them like email, reducing a potentially resource-draining requirement. Additionally, because social media fits under the new “retail communication” classification, it also means that the record keeping requirements remain fully applicable. As the landscape of digital communications continues to evolve, it is good to see FINRA taking steps to adapt.
