FINRA stands for the Financial Industry Regulatory Authority. It is a non-profit organization that has been authorized by the U.S. Government to supervise broker-dealers within the United States. They are regulated by the Securities and Exchange Commission.
FINRA’s main goals are to protect investors, and to ensure market integrity. FINRA’s social media goals are similar. They have a role in ensuring that advertisements for investment products do not mislead. Also, they oversee the disclosure and recordkeeping for investment products.
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What does FINRA say about social media?
FINRA first started issuing guidance specific to social media way back in 2010. That’s when social networking was still in its infancy.
Thirteen years later, FINRA has quite a lot to say about social media. That’s not surprising. Their research shows social media has become the top source of investing information for Gen Z investors. Almost half of millennials and more than a quarter of Gen X also rely on social to learn about investing.
Source: FINRA Investor Educational Foundation and CFA Institute
FINRA regulations apply to social media as they do to any other communication medium. FINRA says:
“Social media is a new medium but FINRA rules for communicating with the public still apply.”
In this post we will explore how financial institutions can use social media to communicate with their customers.
Social media and FINRA violations: Common risks and violations
Here are the most common ways that social media can be used to violate FINRA rules.
Archiving communications with clients and prospects
FINRA requires that you archive all communications relating to your “business as a whole” for a minimum of three years. FINRA’s social media archiving requirements are no different.
It can be tricky if the brokers are using individual accounts to conduct business. You have archived your corporate channels. Do you have a record of the communications that were sent through these accounts?
Remember that the requirements for archiving go beyond direct messages. These requirements also apply to comments made on social media.
Inadequate supervision/approval of a principal
Before using social media, a registered principal must review the accounts. Accounts managed by brokers and individual agents are included.
Before posting, all static content must be approved by an authorized principal. Compliance with interactive content is monitored.
What is the difference between interactive and static communications? Static content remains online for a long time. Interactive communication happens in real time. A social post, for example, is static. But responding to comments is interactive.
Interactive communication that recommends specific product recommendations is subject to more suitability rules. Either:
The recommendation must be approved by a registered principal in advance or must follow a template.
Keep a record of all approvals.
Commenting on social media
Track comments made on your social media channels. You should be on the lookout for any complaints, instructions or other communications you need to review. The same deadlines apply to these comments as they do to any other communication.
It is not necessary to respond to comments that are positive about your company. You don’t have to do anything unless you want to share, reply or like them. Then, you’ve “adopted”. You must disclose testimonials. You can easily do this by clicking on a link that is clearly marked.
Links to third-party sites
Curated content can be a great addition to your social media calendar. You need to be cautious about what you post. Take a look at FINRA Regulatory Note 11-39. The Regulatory Notice 11-39 prohibits firms from linking sites with “false and misleading content.”
The Regulatory Notice 17-18 clarifies further:
By sharing or linking to a specific piece of content, a firm adopts that content. It is responsible for ensuring, when the content is read in context, it meets the same standards and guidelines as communications created on behalf or by the firm.
Are you thinking about sharing a website link that leads to a useful resource? Do a thorough review of the website to ensure it only contains credible information.
Influencers are important for your business
Referral programs and social media influencers can be used by investment firms. They must be very careful when screening influencers.
Review the social media content of an influencer before working with them. Look for any content that is in violation of compliance or reputational risk.
After you have established a relationship, it is important to ensure that the influencers are properly trained. Set up supervisory procedures. Keep records of all communications relating to your business. This includes both public comments and DMs.
It is much more than most influencers get. They may be irritated by these requirements. If they won’t work with you in order to follow FINRA rules, then they aren’t a good match for your company.
According to FINRA’s guidelines, the posts and comments of social media influencers need to be labelled as advertisements. The Regulatory Notice 17-18 states that:
Firms must clearly label as advertising any communications in the form of posts or comments by influencers, and include any other required information for compliance with Rule 2210.
Making unfounded claims
Social media can seem like an informal platform to interact with potential clients. Social media content must still adhere to the content standards set forth in FINRA Rule 2210 on Communications with the Public.
Some of the FINRA Rule 2210 Social Media Expectations are:
You cannot exaggerate or make false claims.
What are the consequences if FINRA violates social media?
FINRA enforces its social media policies through a formal enforcement process.
Source: FINRA
The disciplinary action may range from a Cautionary Action to being banned from the brokerage business. The latter is only applicable in serious cases. Fines and suspensions are also possible sanctions.
The following are possible sanctions for violations of approval, review and recordkeeping.
Source: FINRA Sanctions Guidelines
The same violation can result in fines ranging from $5,000 to $80,00 for firms.
Source: FINRA Sanctions Guidelines
As we have already noted, these aren’t the only ways that you can violate FINRA rules on social media. Here’s an example of a real-world discipline.
FINRA disciplined a general securities representative in December 2022. He was fined $5,000 and suspended for 10 days due to a series posts on his Facebook page.
FINRA cited some of the posts’ text in its decision. Here is an example:
“Good afternoon everyone, I am very pleased to announce our monthly performance for September 2019. [Hedge Fund A] came in 3rd for an options hedge funds with a return of 2.79 % per month. We are the best performing hedge fund for options strategies on the market. We have beaten the S&P since 2015 by over 100%. Who is looking out for your best interests? “WE DO!”
The posts were found to be in violation of three FINRA Rules.
Often options-related, but did not have the proper disclosures. Were not reviewed or submitted to FINRA Advertising Regulation Department.
How to create a social media presence that is compliant with FINRA
All of this might sound confusing. If you follow the right procedures, you can keep your company compliant with FINRA’s rules for social media.
1. Understanding the Regulations
You’ve probably noticed that FINRA has a number of rules and regulations for social media.
When planning your social media campaign, you should be focused on:
Recordkeeping and filing requirementsApproval, supervision, and review requirementsCommunications rulesRules related to testimonials, influencers, and social adsRules related to adoption of/linking to third-party content
This post has already covered the highlights. Regulatory Notice 17-18 provides a detailed understanding of FINRA’s social media regulations.
2. Train your team
It is important that your team understands the difference between personal and business use of social media. The Regulatory Notice 1139 states:
The policies and procedures of a firm must include the training and education for its employees and associates regarding the difference between business and non-business communication and the necessary measures to ensure that all business communications made by the associated persons are retained, retrievable and monitored.
Sanctions Guidelines identify “adequate education and training initiatives” as an important consideration in deciding how to respond to a violation.
Protect your brand by ensuring you are regularly trained on FINRA compliance, social media and the latest developments in financial services.
3. You can restrict access to your social media accounts
If you allow unauthorized access to your social media accounts, your company is at risk of many FINRA violations. These could include a lack of supervision, false statements or breaches in customer data. Each social media account has a lot on the line.
Team members should not log in to social media platforms directly. Use a social media tool such as Hootsuite instead to manage your account’s access and permissions. Each team member will have the right level of access based on their role. You can also set up a workflow for approval. It allows you to review all social media posts before they are posted.
4. Social media guidelines: Create them!
Social media guidelines is an important document to have for any brand. Financial services brands need them to be successful.
Your social media guidelines for your brand should include the following:
Disclosure and transparency requirements;Privacy rules;Cyber safety guidelines;Guidelines on harassment and inclusivity; andCopyright and trademark guidelines.
Firms that are subject to FINRA rules need to go one step further. Add specific procedures to supervise, approve, and archive.
Sanctions Guidelines state that a FINRA policy on social media is a key consideration.
Bonus: Download a customizable, free social media policy template specifically designed for banks. Create guidelines quickly and easily for your financial institution.
5. Create a content library
Add your content to a library once it has been approved. It gives your team an ever-growing catalog of resources that they can use, without having to go through the lengthy approval process for new content. The Suitability Rules, for example, state that firms should:
“Prohibit interactive electronic communication that recommends specific products, unless:
A registered principal has approved the content or the recommendation conforms with a template previously approved.”
Hootsuite Amplify is a great way to share newly approved content with your team. This is particularly useful for independent agents and brokers.
6. Verify content before publishing
Before posting, every social media post should be reviewed for compliance. Compliance experts should not waste time on repetitive compliance issues.
Training can help reduce compliance issues even before the content is approved. Use an automated compliance tool such as ProofPoint to reduce the number of compliance revisions.
Hootsuite ProofPoint’s integration blocks content automatically for violations of compliance standards. It highlights specific items for revision. The social team can make any necessary changes and then send the post back to the compliance team. Your compliance experts can then focus on more complex compliance issues. This reduces the number of posts and back-and-forth required.
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7. Keep impeccable records and archives
We hope you’ll never be subjected to a regulatory audit. If you have to go through a regulatory audit, you will need to keep records of your social media communications and activity.
Hootsuite can be integrated with Brolly, a solution that archives posts, comments and other communications automatically. All communications are archived in a searchable archive, with all the context.
Hootsuite records all approvals. You will have a complete record of all the approvals that FINRA requires.
Hootsuite simplifies social marketing for financial services professionals. You can manage your entire network from a single dashboard. This allows you to drive revenue, provide excellent customer service, minimize risk and remain compliant. Learn how this tool can benefit your business.
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