FINRA Proposes New Rules: Pre-Review of Content No Longer Required

FINRA proposed rule changes to the SEC regarding communications to the public, and the proposed changes simplify rules for financial services firms using social media.
First, FINRA proposed that firms will not need prior approval of content posted on social sites as long as the site qualifies as an interactive electronic forum.

Second, FINRA proposes to reduce the six categories of communications to three, as follows:

  • Institutional communication: includes all communications that fall within the current guidelines.
  • Retail communication: includes any written (including electronic) communication that is made available to more than 25 retail investors within any 30-day period.
  • Correspondence: includes any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30-day period.

The proposal eliminates definitions for advertisement, sales literature, institutional sales material, public appearance and independently prepared reprints, and “… communication that currently qualifies as advertisements and sales literature would generally fall under the definition for retail communications.”

Within Retail Communication FINRA proposes a supervisory exemption for:

  1. any retail communication that is posted on an online interactive electronic forum (eg., social networks), and
  2. any retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member.

All of this is good news for firms and reps engaging in social media, since organizations will not need to pre-review content posted to social networks like Facebook, LinkedIn and Twitter.

Even so, the following rules still apply:

  1. Firms must still maintain records of the communications at existing levels.
  2. In addition, firms must supervise the content in the same manner as correspondence, which means firms must review the content after it is posted, so conversation monitoring and mining capabilities are still important for firms.
  3. And you still can’t predict performance, imply past performance will recur, or making any exaggerated or unwarranted claim, opinion or forecast. As the NY Times reported, a California broker was suspended and fined $10,000 in July for posting “misrepresentative and unbalanced” messages on Twitter.

While social networking profiles will be classified as a Retail Communication, the proposed changes do not suggest that profile information will be exempt from pre-review requirements, so profiles still need to be reviewed before publishing.

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