FINRA Digs Deeper on Social Media

There has been a lot of regulatory news regarding social media lately. IIROC issued their draft notice to account for social media. The SEC sent out a Sweeps letter. And now FINRA is going to re-open up the discussion on social media in 2011.

In an article from FA Magazine, Joe Price of FINRA discusses reconvening the social media task force to offer additional guidance on top of what has been provided in Notice 10-06. I for one applaud FINRA for continuing the discussion with the industry on this topic. In 12 short months we’ve seen over 100 FINRA-regulated firms adopt social media in a compliant fashion. These experiences have led to many learnings and some additional questions.

Many firms are also realizing that the honeymoon period is over. FINRA announced their examination priorities for 2011 and social media is one of the 20 areas listed. To quote their priorities announcement “In 2011, firms can expect FINRA examiners to review supervisory systems and recordkeeping for electronic communications like social media.” It should be noted that firms need to account for positive supervisory procedures as well as the reverse (test and ensure that reps are adhering to prohibition, if that is the policy)

Along this journey many firms have inquired about state regulators and their stance on social media. To date we have not seen any specific guidance from these regulatory bodies but we have heard anecdotes of state auditors examining social media policies, procedures and systems to support compliance. Without direct guidance it appears this auditors are using FINRA’s guidance as their measuring stick. This isn’t surprising when you look at the information coming from the SEC and IIROC. The guidance they are providing all looks very similar to FINRA’s.

Back to the topic of additional guidance, in the FA Magazine article described above, Joe Price is quoted as saying “People have said to me, ‘You’re not being creative enough. You’re not appreciating the fundamental sea change going on in communication,’” He points out that FINRA can’t modify the rules on its own because record-keeping requirements were established by the SEC, but does mention “We may need to rethink those old rules.”

There is no doubt this is a unique medium. That being said firms that wait to act are only putting themselves at more risk. Just look at what we found in our Advisor Survey last year. 40% of the respondents stated they were knowingly violating corporate policy to take advantage of the business benefits of social networks. By supporting a policy of prohibition you are actually inviting risk, not reducing it.

In addition, and perhaps more important, you are losing out on all the value that can be driven from these sites. Don’t believe me? Check out the recording of our latest webinar on LinkedIn Business Benefits. You’ll hear about real-world use cases and techniques for transforming your practice using LinkedIn. So stay tuned. 2011 is going to be a banner year for social media – for many reasons…