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Interpreting FINRA RegulatoryNotice 10-06 and 11-39Updated to include FINRA Rule 2210
ContentsExecutive Summary...........................................................................3Regulatory Notice 10-...
Executive SummaryThe Financial Industry Regulatory Authority (FINRA) issued RegulatoryNotice 10-06 in January 2010 to prov...
Definitions    When FINRA issued Regulatory Notices 10-06 and 11-39, there were six    major categories of communications ...
Interactive Electronic ForumInteractive content is considered non-static. These real-timecommunications do not require app...
Regulatory Notice 11-39    In this notice, FINRA provides further guidance for firms on applying    rules governing commun...
SupervisionUnder NASD Rule 3010, firms must supervise registered persons. To thisend, a registered principal must review a...
Key Social Media Sites    Facebook    Facebook is the largest social network in the world with over one    billion members...
Mapping Features to 10-06 and 11-39Facebook                    FINRA            FINRA                   RelevantFeature   ...
Facebook                            FINRA           FINRA                   Relevant      Feature               Definition...
Mapping Features to 10-06 and 11-39LinkedIn                     FINRA            FINRA                   RelevantFeature  ...
Mapping Features to 10-06 and 11-39     Twitter                            FINRA            FINRA                   Releva...
FINRA Examiners’ ChecklistPoliciesFINRA examiners typically are interested in the types of written supervisoryprocedures f...
•• General use of social media within the firm     •• Any communications posted to social media sites     •• Any prospecti...
Compliance considerations•• Social networking sites, such as Facebook, offer no native archiving    functionality, making ...
About Actiance, Inc.       Actiance® is a global leader in communication, collaboration, and social       media governance...
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Handbook on Interpreting FINRA Regulatory Notices 10-06 and 11-39 and Using Social Media

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This handbook is intended as a primer on Regulatory Notices 10-06 and 11-39 and how each relates to social media sites like Facebook, LinkedIn, and Twitter.

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Transcript of "Handbook on Interpreting FINRA Regulatory Notices 10-06 and 11-39 and Using Social Media"

  1. 1. Interpreting FINRA RegulatoryNotice 10-06 and 11-39Updated to include FINRA Rule 2210
  2. 2. ContentsExecutive Summary...........................................................................3Regulatory Notice 10-06....................................................................3 Definitions .......................................................................................4 Categories of Electronic Communications............................................4 Regulatory Notice 10-06 Provisions ...................................................5Regulatory Notice 11-39....................................................................6 Regulatory Notice 11-39 Provisions ....................................................6Key Social Media Sites.......................................................................8 Facebook .........................................................................................8 LinkedIn ..........................................................................................8 Twitter .............................................................................................8Mapping Features to 10-06 and 11-39...............................................9 Facebook..........................................................................................9 LinkedIn.........................................................................................11 Twitter............................................................................................12FINRA Examiners’ Checklist.............................................................13 Policies .........................................................................................13 Procedures.....................................................................................13 Recordkeeping................................................................................14About Actiance, Inc.........................................................................16 | Privacy Controls for Facebook
  3. 3. Executive SummaryThe Financial Industry Regulatory Authority (FINRA) issued RegulatoryNotice 10-06 in January 2010 to provide guidance to broker-dealersregarding the use of social media for advertising. As social media isrelatively new in the financial services industry, firms are trying to betterunderstand how they can use social media effectively. A task forceconvened early in 2011 to revisit 10-06, resulting in the issuance ofRegulatory Notice 11-39 in August 2011 as a corollary to 10-06.This handbook is intended as a primer on Regulatory Notices 10-06 and11-39 and how each relates to social media sites like Facebook, LinkedIn,and Twitter. Additionally, the handbook details how the key features ofthese sites map to 10-06 and 11-39, what the appropriate course ofaction should be, and what kinds of issues FINRA regulators are mostinterested in when conducting their audits. This handbook has also beenupdated to include FINRA Rule 2210, which went into effect February 4,2013.Regulatory Notice 10-06FINRA Regulatory Notice 10-06 is the key piece of guidance on theuse of social media for advertising purposes. With the increasingpopularity and use of social networking sites like Facebook, LinkedIn,and Twitter, the industry felt it was necessary to issue guidance specificto social media. With the availability of such guidelines, broker-dealersand registered representatives (RRs) now have more clarity into thepermissible uses of social media and the associated supervisory andrecordkeeping requirements. Using Social Media | 3
  4. 4. Definitions When FINRA issued Regulatory Notices 10-06 and 11-39, there were six major categories of communications under NASD Rule 2210. Since then, FINRA has replaced NASD Rules 2210 and 2211 and NYSE Rule 472 with FINRA Rule 2210, which governs communications with the public. The new rule reduces the number of communications categories from six to three, two of which pertain to social media: Correspondence Correspondence includes any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Retail communication Retail communication includes any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. A “retail investor” includes any person other than an institutional investor, regardless of whether the person has an account with the firm. Communications that formerly qualified as advertisements and sales literature generally now fall under the definition of “retail communication.” Categories of Electronic Communications Static Content Static content is generally accessible to all visitors and usually remains posted until it is removed by the firm or individual who established the account. Examples of static content include profile, background, or wall information. A registered principal of the firm must approve all static content, on a page before it is posted, or before the page is edited.4 | Using Social Media | Privacy Controls for Facebook
  5. 5. Interactive Electronic ForumInteractive content is considered non-static. These real-timecommunications do not require approval by a registered principal prior touse. In fact, FINRA Rule 2210, specifically exempts from pre-review anyretail communication that:•• is posted on an online interactive electronic forum;•• does not make any financial or investment recommendation or otherwise promote a product or service of the firm.However, firms still have record keeping requirements and must supervisecommunications. Examples of interactive content include Facebook posts,tweets, and LinkedIn status updates.Regulatory Notice 10-06 Provisions•• Publicly available websites, banner advertisements, and bulletin boards are considered advertisements. Static (non-interactive) content on social media sites and blogs are also deemed to be “advertisements.”1•• An email or instant message sent to 25 or more prospective retail customers is considered “sales literature.”1•• An email or instant message is considered “correspondence” if it is sent to (1) a single customer (prospective or existing); and (2) less than 25 prospective retail customers within a 30-day period.•• Password-protected websites are considered “sales literature.”1•• Real-time interactive or non-static electronic forums, including extemporaneous chat room, social networking, and blog comments are considered “public appearances.”11 Now defined as “Retail Communications,” per FINRA Rule 2210. This rule replaces NASDRule 2210 and 2211 and NYSE Rule 472. Using Social Media | 5
  6. 6. Regulatory Notice 11-39 In this notice, FINRA provides further guidance for firms on applying rules governing communications with the public when using social media. In short, firms are reminded that existing rules for recordkeeping, suitability, supervision and content requirements all apply to social media. Additionally, FINRA clarified the following points: •• The content of the communication is determinative, not the communication channel. •• A firm is subject to the “adoption” and “entanglement” theories regarding third-party posts. •• Business communications over personal devices must be retained, retrievable, and supervised. Regulatory Notice 11-39 Provisions Recordkeeping Under Securities Exchange Act (SEA) Rule 17a-4, firms must retain retrievable records of business-related communications made through social media, regardless of the type of device or technology, or whether they were made by firm-issued or personal devices. In order to retain all business-related communications, firms may not use communications devices that automatically delete information. FINRA also states that firms must develop policies and train associated persons on the differences between business and non-business communications. As further clarification to 10-06, both static and interactive content are subject to recordkeeping rules.6 | Using Social Media | Privacy Controls for Facebook
  7. 7. SupervisionUnder NASD Rule 3010, firms must supervise registered persons. To thisend, a registered principal must review a social media site in the formthat it will be launched. Reiterating 10-06, unscripted participation in anelectronic form is considered a “public appearance”1 and, therefore, doesnot require prior approval by a registered principal of the firm. However, itmust be supervised to ensure that communications do not violate FINRAor SEC rules, including the content requirements of FINRA Rule 22101.However, should interactive content become static, it is considered an“advertisement”1 and, as such, requires pre-approval by a registeredprincipal of the firm.Third Party Posts, Links, and SitesAn associated person may respond to communications on a social mediasite as long as the response does not violate a firm’s policies. Firms maynot establish third-party links to any site that is known to have false ormisleading content. A firm is responsible under NASD Rule 22101 for thecontent on a third-party site if the firm has either become “entangled” inthe development of the content or “adopted” the content through implicitor explicit endorsement.Data FeedsFirms are responsible for third-party data feeds and must review them foraccuracy and correct any erroneous data. Using Social Media | 7
  8. 8. Key Social Media Sites Facebook Facebook is the largest social network in the world with over one billion members. It enables members to create profiles, upload photos, join groups, and set up “fan” pages to better interact with customers, prospects, and fans. It aims to make the world “more open and connected.” LinkedIn LinkedIn is a social networking site focused on business professionals. It numbers over 200 million members with representation in over 200 countries. Members use the site to exchange information, ideas, and opportunities. They build up a network of “connections” by joining groups and inviting others to join their network. Twitter Twitter is a social media site that offers a microblogging service (140 characters or less). It’s been nicknamed the “SMS of the Internet” and is essentially a real-time information network that connects you to the latest information on topics of interest to you. You can choose to “follow” or be followed by others. Additionally, your messages can be private, and you retain control over who follows you.8 | Using Social Media | Privacy Controls for Facebook
  9. 9. Mapping Features to 10-06 and 11-39Facebook FINRA FINRA RelevantFeature Definition Category Recommendation Controls Archive, Post- RetailBasic information Static Pre-review review, Block/ Communication allow Archive, Post- RetailProfile picture Static Pre-review review, Block/ Communication allowUpdate status Archive, Retail(Wall & News Interactive Supervise Post-review, CommunicationFeed) Pre-review*Upload photo Retail Archive, Post-(Wall & News Interactive Supervise Communication reviewFeed)Attach link (Wall Retail Archive, Post- Interactive Supervise& News Feed) Communication reviewUpload video Archive, Post- Retail(Wall & News Static Pre-review review, Block/ CommunicationFeed) Allow Archive, RetailWrite a comment Interactive Supervise Post-review, Communication Pre-review* Archive, Post-Chat Correspondence Interactive Supervise reviewCompose Archive, Post- Correspondence Interactive Supervisemessage reviewPost new topic to Retail Archive, Post- Interactive Supervisegroup Communication review Using Social Media | 9
  10. 10. Facebook FINRA FINRA Relevant Feature Definition Category Recommendation Controls Retail Archive, Post- Create group Communication Interactive Supervise review Retail Archive, Post- Chat with group Interactive Supervise Communication review Post reply to Retail Archive, Post- Interactive Supervise group topic Communication review Retail Archive, Post- Join a group Interactive Supervise Communication review Like (may be Archive, Post- Retail Static or considered an Block or Supervise review, Block/ Communication Interactive endorsement) allow10 | Using Social Media | Privacy Controls for Facebook
  11. 11. Mapping Features to 10-06 and 11-39LinkedIn FINRA FINRA RelevantFeature Definition Category Recommendation Controls Archive, Post- RetailBasic information Static Pre-review review, Block/ Communication allow Archive, Post- RetailProfile picture Static Pre-review review, Block/ Communication allowProfile update Archive, Post- Retail(Video, Shared Static Pre-review review, Block/ Communicationdocuments, etc.) Allow Archive,Share status Retail Interactive Supervise Post-review,update Communication Pre-review*Comment to Retail Archive, Post- Interactive Supervisestatus update Communication reviewCompose Archive, Post- Correspondence Interactive Supervisemessage review Archive, Post- RetailRecommendations Static Block review, Block/ Communication allow RetailJoin group Interactive Supervise N/A Communication RetailCreate a group Interactive Supervise N/A Communication Retail Archive, Post-Start a discussion Interactive Supervise Communication reviewLike a group Archive, Post- Retail Static ordiscussion Block or Supervise review, Block/ Communication Interactivecomment allowPost a comment Retail Archive, Post-to group Interactive Supervise Communication reviewdiscussion Using Social Media | 11
  12. 12. Mapping Features to 10-06 and 11-39 Twitter FINRA FINRA Relevant Feature Definition Category Recommendation Controls Retail Archive, Post- Basic information Static Pre-review Communication review Retail Archive, Post- Profile picture Static Pre-review Communication review Archive, Retail Tweet Interactive Supervise Post-review, Communication Pre-review* Retweet (may be Archive, Post- Retail Static or considered an Block or Supervise review, Block/ Communication Interactive endorsement) allow Retail Archive, Post- Reply Interactive Supervise Communication review Archive, Post- Retail Static or Favorite Block or Supervise review, Block/ Communication Interactive allow Follow N/A Interactive Supervise N/A Send a direct Archive, Post- Correspondence Interactive Supervise message review Archive, Post- Retail Static or Create a list Block or Supervise review, Block/ Communication Interactive allow12 | Using Social Media | Privacy Controls for Facebook
  13. 13. FINRA Examiners’ ChecklistPoliciesFINRA examiners typically are interested in the types of written supervisoryprocedures financial services firms have adopted to address social media.Of particular interest to regulators are the following policies:•• General use of social media within the firm•• Any communications posted to social media sites•• Any prospective communications posted to social media sites•• Any ongoing monitoring or review processes related to communications posted to social media sites•• Third-party communications posted to a social media site•• Approval processes for prospective communications posted by third parties•• Any ongoing monitoring or review processes for communications posted by third parties•• Use of social media for non-business purposes•• Training and education of personnel on social media usage, whether for personal or business purposes•• Disciplinary action for social media use•• Record retention of social media, whether for personal or business purposes•• Process for handling customer complaintsProceduresRegulators are also interested in learning about the procedures firmshave in place to ensure that the latter remain in compliance with FINRAguidelines. Generally speaking, procedures usually mirror the policiesthemselves, i.e., firms will develop procedures to be consistent with thepolicies they’ve established (see preceding section). Thus, regulatorsare interested in viewing documentation pertaining to procedures forthe following: Using Social Media | 13
  14. 14. •• General use of social media within the firm •• Any communications posted to social media sites •• Any prospective communications posted to social media sites •• Any ongoing monitoring or review processes related to communications posted to social media sites •• Third-party communications posted to a social media site •• Approval processes for prospective communications posted by third parties •• Any ongoing monitoring or review processes for communications posted by third parties •• Use of social media for non-business purposes •• Training and education of personnel on social media usage, whether for personal or business purposes •• Disciplinary action for social media use •• Record retention of social media, whether for personal or business purposes •• Process for handling customer complaints Recordkeeping Regulators constantly remind members that they must adhere to recordkeeping rules, if they choose to communicate through social networking sites. “Each member shall make and preserve books, accounts, records, memoranda, and correspondence in conformity with all applicable laws, rules, regulations and statements of policy promulgated thereunder and with the Rules of this Association and as prescribed by SEA Rule 17a-3. The record keeping format, medium, and retention period shall comply with Rule 17a-4 under the Securities Exchange Act of 1934.”14 | Using Social Media | Privacy Controls for Facebook
  15. 15. Compliance considerations•• Social networking sites, such as Facebook, offer no native archiving functionality, making it difficult to comply with Regulatory Notice 07-59 that spells out the requirements for review “by a supervisor of employees’ incoming, outgoing and internal electronic communications.”•• Native archiving functionality offered by unified communications and other real-time communications tools is rarely able to provide a granular breakdown of conversations by persons (including buddynames), key phrases, and timeframes, which are essential for compliance and eDiscovery requirements.•• This is further complicated by the various modalities used in conversations – from IM to BlackBerry.Compliance recommendationsEnterprises should deploy a central archiving system that enableseasy review of posted messages and detailed analysis of electronicconversations, including file downloads both internally and externally,complete with an audit trail of the auditor reviewing the information. Inaddition, the information should include who joined a conversation, whenthey joined, when they left, any disclaimers shown (e.g., at the beginningof an IM conversation), call detail records, etc. Using Social Media | 15
  16. 16. About Actiance, Inc. Actiance® is a global leader in communication, collaboration, and social media governance for the enterprise. Its governance platform is used by millions of professionals across dozens of industries. With the power of communication, collaboration, and social media at their fingertips, Actiance helps professionals everywhere to engage with customers and colleagues so they can unleash social business. The Actiance platform gives organizations the ability to ensure compliance for all their communications channels. It provides real-time content monitoring, centralized policy management, contextual capture of content and smart archiving which improves the efficiency and cost-effectiveness of eDiscovery and helps protect users from malware and accidental or malicious leakage of information. Actiance supports all leading social media, unified communications, collaboration, and IM platforms, including Facebook (FB), LinkedIn (LNKD), Twitter, Google (GOOG), Yahoo! (YHOO), Skype, IBM, (IBM), Jive (JIVE), Microsoft (MSFT), Cisco (CSCO), and Salesforce.com (CRM).More informationactiance.comsales@actiance.comFollow us facebook.com/Actiance linkedin.com/company/actiance-inc twitter.com/actiance youtube.com/actiance slideshare.com/actiance©2013 Actiance, Inc. All rights reserved. Actiance, the Actiance logo, Socialite, and the Socialite logo are registered trademarksof Actiance, Inc. Vantage is a trademark of Actiance, Inc. All other trademarks are the property of their respective owners.

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