Recently the SEC issued an Alert as to financial social media. In the Alert, the staff notes that the “use of social media by the financial services industry is rapidly accelerating” and encourages firms using financial social media to “adopt, and periodically review the effectiveness of, policies and procedures regarding social media in the face of rapidly changing technology.” The staff goes on to make the following observations.
The staff notes that firms vary in their compliance program approaches to financial social media, and that many firms currently have multiple overlapping procedures that may generally apply to the use of financial social media, rather than a single, unified social media policy. The staff expressed concern that these overlapping procedures (covering, for example, advertisements, client communications or electronic communications) may create confusion regarding their application to the use of financial social media by investment advisory personnel and the types of social networking activity that are permitted or prohibited by an investment adviser.
Factors for Investment Advisers to Consider
The Alert sets forth a non-exhaustive list of factors that investment advisers are encouraged to consider when evaluating their compliance programs with respect to financial social media. This list includes:
Standards for Investment Adviser Representatives/Solicitors
* Usage guidelines on the appropriate and inappropriate use of financial social media for representatives and solicitors
* Standards for content created by the firm or its representatives or solicitors
* Policies and procedures to address representatives or solicitors who conduct firm business on personal or third-party financial social media websites
Where the investment adviser is part of a larger corporate enterprise, it may wish to consider guidelines pertaining to enterprise-wide use of financial social media
Procedures for Monitoring Use of Financial Social Media and Legal Compliance
* Frequency of monitoring of representative or solicitor activity
* Approval or pre-approval of posted content
* Sufficient dedication of compliance resources
* Criteria for approval of participation
* Training for representatives
* Certification by representatives and solicitors that they understand and are complying with firm policies and procedures
* Information security risks posed by representative access to social media websites
Impact on Investment Advisers
* Investment advisers may need to address the use of financial social media in the course of fulfilling their fiduciary, compliance and recordkeeping obligations. Given that the use of Financial Social Media may not fit smoothly within existing federal securities laws and regulations relating to client disclosure/communication and advertising, it may present a challenging compliance matter for investment advisers.
* Although the SEC staff and FINRA have suggested areas of concern and potentially relevant considerations to address, there is no one-size-fits-all set of policies and procedures appropriate for all usages of financial social media by investment advisers and their personnel. Therefore, an investment adviser that permits the use of financial social media should tailor its social media policies to suit its operations, taking into account the considerations suggested by the Alert and the FINRA notices.
* The SEC is unlikely to issue more definitive guidance regarding the use of financial social media in the near term. Until more concrete guidance/market practice has emerged, firms may benefit from taking a conservative approach by limiting the use of social media and the ability of non-firm personnel to “like” or post content to the firm’s social media website.
* Monitoring and recordkeeping related to Financial Social Media may also present challenges for investment advisers. Due to the difficulty of readily identifying which financial social media interactions may require records, some investment advisers may be tempted to capture all such interactions, notwithstanding that investment advisers, unlike FINRA member broker-dealers, are not required to retain all communications relating to their business “as such.”