FINRA Test Prep – Supervision of Social Media

In this article we are going to examine some of the complex issues that can arise when registered representatives use social media for business purposes. In addition to the requirements for registered Representatives who use social media we will look at  some of the compliance responsibilities for the employing broker-dealer.

The use of social media such as Linkedin, Facebook and Twitter all need to be closely supervised by FINRA member firms, specifically in cases where the communication posted by the firm or its agents could be deemed to be a recommendation. Being able to determine when communication reaches the level of a recommendation is a key element on all FINRA exams and for supervisors in general. When communication is deemed to be a recommendation it becomes subject to the suitability requirements of FINRA Rule 2111. Certain types of communications that are deemed to be recommendations are as follows:

  • Targeted email distributions and tweets that advise the reader to buy or sell a security or securities within a sector
  • Targeted Pop up, redirect and mouse over messages displayed to website visitors that advise the visitor to buy or sell a security or securities within a sector.

If the firm maintains a website that allows access to a library of research containing previous buy and sell recommendations the ability to access the library will not constitute a recommendation. Due to the complex compliance issues that social media presents,  member firms are within their rights to limit or restrict employees use of social media. Should a member firm allow its representatives to communicate over social media the level of supervision required will depend on the type of social media used and the content of the communication. Member firms must properly train its employees on the use of social media and maintain written policies and procedures regarding its use and supervision .Static content that may be accessed by any visitor at any time requires prior approval from a principal before the static post is made. Static content includes Facebook walls, LinkedIn profiles. blogs and Twitter posts. Aggressively Tweeting positive or negative messages about an investment is a cause for concern and may result in sanctions being imposed on both the agent and the firm. Only agents who have the approval of their firm to tweet about investments should do so. Interactive blogs and chatroom conversations are deemed to be public appearances. These public appearances do not require prior principal approval but are subject to FINRA rules. Statements made must be factual and not exaggerated and no statements should be made about a security during a quiet period. It is important to note, that most blogs are static and require prior approval for posts, merely updating a blog on a regular basis does not constitute an interactive blog. FINRA members must carefully supervise the use of social media by its agents and must have systems in place designed to detect potential violations. These systems should be designed to detect red flag words such as “guarantee” or “can’t lose”. Agents who have a history of questionable sales practices or who have been sanctioned should be prohibited from using social media for business purposes. A post on social media from a client of the firm or from an unrelated third party will not be deemed to have been made by the firm and is not subject to supervision unless the firm assisted in preparing such post or approved the content.

Take Note!

One way for a firm to keep close supervision for representatives who make recommendations using social media is to have a preapproved catalog of research available for the agent to use. The supervision of social media and electronic communication is highly tested on Most principal level exams Those readers who need to pass the series 10, 24, 26, and 39 exams, may review a free 20 to 30 minute video detailing some of the concepts you will see on your exam by selecting the appropriate Securities exam prep tab above

Good luck on your exam!

 The Securities Institute 

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