Staying ahead of the curve social media compliance 10-7-2010 - final

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Presentation on Social Media and compliance, highlighting importance of training and monitoring/testing.

Presentation on Social Media and compliance, highlighting importance of training and monitoring/testing.

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  • 1.
    • Staying Ahead of the Curve: Social Media Compliance
    • NRS 25 th Annual Fall Conference
    • Scottsdale, AZ
    • National Regulatory Services
    • Lakeville, CT 6039
    • October 7 th , 2010
  • 2. Overview of Session
    • Where is Social Media Going?
    • Regulatory Considerations
    • Training – the Key to Effective Policy
    • Monitoring – Two Important Reasons You Need to Do It
    • Solution Providers – What to Look For
    • How to Keep up with What is Going On
    • Additional Resources
  • 3. Where is Social Media Going? Are you up to date on what is going on?
  • 4. In the News
    • Google Wave is Dead – and Google Buzz is limping along
      • Implications of Facebook/Twitter monopolies
    • Expansion of Facebook Connect on Web
      • How long till the whole web is Social?
    • LinkedIn Upgrades
      • Impact on LinkedIn Business Model of recent changes to be more like Facebook
    • Impact of Mobile on Social Networking
    • What Localization means to the Spread of Social Networking
      • Think “Minority Report”
      • Facebook Places
  • 5. Where is Social Networking Going?
    • The internet and social networking will be the same in the future – our interactions in the cloud will be personalized and connected
    • Google vs. Facebook – the old paradigm vs. the new paradigm
    • The rate of change is only increasing
      • The iPad sold 3 million in it’s first 80 days
      • Facebook users went from 350 million to 500 million in just over 6 months
    • “Public is the New Private”
      • The Social Network
    • Localization will have a huge impact on effective advertising
      • Targeted Approach finally reaching maturity - overtaking Blast Approach
  • 6. Positive Uses of Social Networking Sites
    • SEC and FINRA are tweeting on Twitter
    • Groups on LinkedIn for professional networking, and discussions generated from the Groups
    • Investment managers are developing Facebook pages, including PIMCO and Vanguard
    • Firms are using LinkedIn for recruiting purposes
  • 7. Positive Uses of Social Networking Sites
    • Communicating with clients, such as tweeting or sharing a link to a newspaper article
    • Learning about clients by reading their postings
    • Greater ability to segment clients and service them based on their needs
    • Searching for specific companies or individuals on LinkedIn to locate prospective clients
    • Increased quality of prospecting through networks
  • 8. Regulatory Considerations A Quick Review of the Regulations Involved and What they Mean for Your Business
  • 9. Regulators Are Paying Attention
    • Modern Methods; Old Scams
      • In June 2010, the SEC brought a complaint against a Canadian couple and two related companies purporting to be investment banks
      • Complaint alleged that fraudulently touted penny stocks on a personal website, Facebook page and Twitter
      • Failed to communicate that rosy predictions for touted stocks were accompanied by their sales of the very same stocks at pumped up prices based on hype they helped to create.
      • Charges include violations of Sections 17(a) and (b) of the Securities Act of 1933, Section 10(b)-5 of the Securities Exchange Act of 1934 and Rule 10(b)-5 thereunder
    • Though in this case they do not purport to be an adviser- COMPARE FACTS TO SEC v. CAPITAL GAINS from 1963!
  • 10. Regulatory Considerations
    • Investment adviser rules concerning
      • Advertising
      • Privacy
      • Supervision
    • Broker-dealers
      • Correspondence
      • Communications with the public
      • Surveillance and supervision
    • Rules concerning insider trading
    • Market manipulation
    • Federal and state “holding out” and related registration/notice concerns
    • 1933 and 1934 Act public offering concerns
    • Recordkeeping requirements
  • 11. Regulatory Considerations - BDs
    • FINRA Guidance:
    • Procedures- Have supervisory procedures, ensure compliance and require annual training
    • Get approval- Posted information regarding the firm’s business is advertising and sales literature. As such, written principal approval is required prior to use and filing with FINRA
    • Follow regular communication rules- Among other requirements, information cannot be misleading and material facts must be disclosed
    • Keep a record- Like other advertising, posting on social networking sites must be maintained for three years from last use.
  • 12. Regulatory Considerations - IAs
    • Rule 206(4)-1 describes and details the various advertising practices which the Commission views as being fraudulent, deceptive and/or manipulative within the meaning of the Advisers Act.
    • Pursuant to this rule, the following may not be contained in any advertisements by an investment adviser:
      • Testimonials concerning any advice or service of the adviser;
      • References to past specific recommendations of the adviser which were or would have been profitable to a person;
      • Representations that any graphs, charts, or formula or device can be used to determine which securities to buy or sell or when to buy or sell them unless accompanied by explicit disclosure regarding limitations;
      • Any representation that a service will be provided free of charge unless there is in fact no condition or obligation; or
      • Any untrue statement of a material fact or which may be false and/or misleading.
  • 13. Regulatory Considerations - IAs
    • ADVERTISING (cont’d)
    • The use of performance data in marketing materials is a highly complex subject and is carefully scrutinized by the SEC.
    • Some states require that state registered advisers file marketing materials with the state before or shortly after “publication.”
  • 14. Regulatory Considerations - IAs
    • Misuse of Inside Information
    • Section 204A of the Advisers Act require investment advisers to create, maintain, and enforce written supervisory procedures designed to prevent the misuse of non-public information.
    • Market Manipulation
    • In light of the Berliner case (SEC Release No. 57774, May 2008), regulators are interested in firm controls to prohibit “rumor mongering” or the dissemination of false information on the market in order to capitalize on the effect of such dissemination for personal or client accounts.
    • Pump & Dump Schemes
    • As in the case study discussed above
  • 15. Regulatory Considerations - IAs
    • Recordkeeping Requirements
    • The Books and Records rule (Rule 204-2(a)(7)) provides that specific written communications must be kept including those relating to a) investment recommendations or advice given or proposed; b) receipt or delivery of funds or securities; and c) placing and execution of orders for the purchase or sale of securities.
    • All electronic communications are viewed as written communications, and the SEC has publicly indicated its expectation that firms retain all electronic communications for the required record retention periods. If a method of communication lacks a retention method, then it must be prohibited from use by the firm.
  • 16. Regulatory Considerations - IAs
    • Supervision
    • Under Section 203(e)(6), the SEC is authorized to take action against an adviser or any associated person who has failed to supervise reasonably in an effort designed to prevent violations of the securities laws, rules and regulations.
    • This section also provides that no person will be deemed to have failed to supervise reasonably provided:
      • there are established procedures and a system which would reasonably be expected to prevent any violations;
      • and such person has reasonably discharged his duties and obligations under the firm's procedures and system without reasonable cause to believe that the procedures and system were not being complied with.
  • 17. Regulatory Considerations
    • Other Miscellaneous
    • Privacy/confidentiality
    • Hedge funds and other private funds- potential loss of exemption
    • Compensation paid to solicitors who referred firm through social media and failed to deliver required disclosures
  • 18. Regulatory Considerations
    • Compliance Programs
    • Rule 206(4)-7, the Compliance Program Rule makes it unlawful for an SEC adviser to provide investment advice to clients unless the adviser, among other things adopts and implements written policies and procedures reasonably designed to prevent violations by the firm and its supervised persons.
    • The Adopting Release of the Compliance Programs Rule urges each adviser, when designing policies and procedures, to identify conflicts and other compliance factors creating risk exposure for the firm and its clients in light of the firm’s particular operations and then to design policies and procedures that address those risks.
    • Firms should carefully assess risks when developing a policy and procedures to address use of social networking by firm and staff
  • 19. Creating a Policy
    • Be sure policy addresses risks identified in your assessment
    • If you are not sure where to start – look at other firm’s policies (see additional info pages)
    • Read up and learn from others on what has happened when they instituted policies (Associated Press, ESPN)
    • Your policy “right now” probably won’t be your policy a year from now
      • Try to be flexible in your wording – don’t just name the big three
      • If you aren’t marketing via Social Media now – you might in the future
      • Write to cover your current situation – plan to revise as things grow and change
    • Best Practices – Think about writing a policy that will refer to a “Best Practices Guideline” – something that will be easier to add to, keep current, and will be easy for employees to refer to and clearly understand what they can and can not do.
    • See the sample policy provided in reference materials.
  • 20. Training – The Key to Effective Policy Is Everyone on the Same Page?
  • 21. Rolling Out the Policy
    • Acknowledgement/Certification affirming policy (renew annually)
    • Prepare an FAQ with real life examples to address the most common questions
    • Make sure you have a plan on how to test it
    • Training, Training, Training
  • 22. Training and Education
    • Once your policy is in place, you need to make sure your employees understand it
    • This is a complex topic so there will be lots of questions
    • Use training as another tool to get more information on possible usage of social media
      • It is likely that employees may think of usage you didn’t know was possible
      • They can help you keep on top of changes
      • Make sure you have an “open door” policy so that they feel comfortable bringing up new questions on an on-going basis
    • Education should be a continual process as social media is a constantly moving landscape
  • 23. Some things to Consider with Training
    • Frequency
      • Since the landscape of Social Media changes so quickly, plan smaller, more frequent training modules and tests
      • Take advantage of topical news events – turn them into training moments
    • Consider Some Outsourcing
      • Already, firms are popping up with Social Media Training solutions.
    • Brainstorming
      • Work with people who heavily use Social Media to think up as many questions and scenarios as possible to include as part of your testing
    • Situational vs. Multiple Choice
      • While some questions may have simple yes/no answers, much about the whole subject of social media usage is not black and white. So consider using scenario based questions to see if your staff is really understanding what they should and should not be doing.
  • 24. Sample from a Training Presentation
    • From a Social Media Training Presentation by *
    • We want to Encourage Employee Participation
    • We Have to be Careful
      • “ Try to Imagine your post plastered on a billboard for all the world to see”
    • Social Media Policy Provides Clear Rules
    • #1 – Don’t Share Company or Financial Secrets
    • #2 – Be Honest and Transparent
      • Do not contribute anonymously
    • #3 – Be Respectful
      • No personal attacks, obscene language or ethnic slurs.
    • #4 – Don’t Make Forward Looking Statements
    • #5 – Don’t Register Channels Without Consent
    • Other tips for posting online
      • Think before you post – Adjust your privacy settings – Conversations are a two-way street
    • Who to Contact for Help
      • Don’t be afraid to escalate questions –to PR, Social Media Team, Legal
    • Slides and notes are available for download at
  • 25. Example Test Questions
    • Can a client give you a Recommendation on LinkedIn?
    • Can you Recommend a current client on LinkedIn?
    • Can you share a story/link on current market volatility via Facebook or LinkedIn?
    • Can you share a story/link on a stock you like via Facebook or LinkedIn?
    • Can you “Like” a story on the Fed’s latest decision on
    • Can you include our firm’s website URL on your LinkedIn profile?
    • Can you comment publicly on discussions on LinkedIn? Can you comment privately?
    • Can you use your work email as your primary email for your LinkedIn account? For your Facebook account? For your Twitter account? For other social media accounts?
  • 26. Example Test Questions
    • A College Friend on Facebook sends you a message – he is opening a 529 for his child and wants to know if you can recommend some investments. What should you do?
    • A co-worker updates her status with “Working late again – Client “X” is a real slave driver – always demanding crazy deadlines”. Should you report this? If so – to whom?
    • You are on a discussion board and someone posts very negative comments about your firm. Should you post a reply to set him straight? Does this post you found constitute a “complaint” that should be reported to your compliance department?
    • A co-worker updates his status – “Going to dinner with John at Goldman Sachs – great possibilities brewing!”. Should you report this? If so – to whom?
    • A friend posts a link to an online article that has some kind comments about your firm. Can you “like” his post? Can you comment on it?
  • 27. Monitoring Two Important Reasons You Need to Do It
  • 28. Monitoring the General Conversation
    • Conversations are being had about you, whether you participate in Social Networking or not
    • “ Tell 2 Friends Factor” –
      • In the past, if someone wanted to tell their friends about you (for good or bad) they probably talked to anywhere from 1-10 people on average
      • The “average” user on Facebook currently has 130 friends(1). And, depending on their privacy settings and the settings of all their friends, the worst case scenario has one comment being viewed by nearly 17,000 people. And that is presuming that no one passes it along.
      • An interesting experiment was conducted recently by a gentleman named Blair Joss .  With a network of 403 connections on LinkedIn,  Joss posed the question of whether people actually read LinkedIn Status Updates.  Within 3 days, over 350 people had commented on his status update and over 1,700 people said they “liked” his update.  
    • Going Viral – Because of the number of connections people have and the ease of passing messages along, conversations can reach millions of people in a very short time
    (1) Source: Facebook -
  • 29. Monitoring the General Conversation
    • Do you have Social Media accounts? Maybe you should!
      • Having an account on these sites means you will understand how they function
      • As things change on these sites, with technology and privacy updates, you will know right away
    • Monitoring software
      • Googling is the minimum you should be doing
      • Softwares are springing up all over with monitoring solutions (see additional resource section for a short list)
    • Use all the eyes and ears you can get
      • If your employees are on social media – enlist them to watch
      • Have a process for immediately bringing it to your attention if they see something
  • 30. Additional Forensic Testing
    • Verify that all employees have provided signed acknowledgements of social networking policy
    • Verify that all employees’ attendance at mandatory training sessions is documented
    • Review publicly-viewable content for compliance
    • Internet searches of employee names for unreported blogs or networking posts
    • “Google Alerts”
    • Technical solutions and developments
  • 31. Solution Providers What to Look For
  • 32. Things to Consider
    • Recordkeeping
      • Integration with your existing systems
    • Workflow
    • Ease of Use
    • Outsourcing
      • What can you handle internally? What services make more sense to purchase?
    • Filtering
      • Blocking certain aspects of social media for virus/malware protection
    • Scalability
      • Does it support your current position on social media (if you are passive)? Will it support what you might do (if you become more active)?
    • Cost
  • 33. How to Keep Up with What is Going On A Few Tips to Help
  • 34. Leveraging Social Media and Web 2.0
    • Use Social Media to Keep Up with Social Media
    • Join LinkedIn Groups
      • Don’t be afraid to throw questions out there and see if anybody answers!
    • Subscribe to Channels on Bright Talk
      • Lots of great topical webinars – that you can attend live, or watch the recordings later, at your convenience.
    • Search Slideshare and Scribed for presentations and whitepapers
    • Subscribe to RSS Feeds
      • Read them via your favorite RSS Reader or your iGoogle or My Yahoo
    • Share useful links via your status updates
      • Everyone benefits from sharing
    • Most of All – Schedule Time for these Tasks!
  • 35. Additional Resources Helpful links to more resources on the topic
  • 36. Regulatory Resources
    • FINRA’s Guide to the Internet for Registered Representatives
    • SEC Interpretation: Use of Electronic Media, Release Nos. 33-7856, 34-42728, IC-24426 (May 1, 2000)
    • Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information, Release Nos. 33-7288; 34-37182;IC-21945; IA-1562 (May 9, 1996)
    • Reporting Requirements for Brokers or Dealers under the Securities Exchange Act of 1934, Release No. 34-38245 (Feb. 5, 1997)
    • FINRA Regulatory Notice 10-06 -
    • FINRA webinar on Social Networking – available on demand -
  • 37. Sample Policy
    • “ The use of social networks for firm business and professional communications with clients is strongly discouraged. However, should employees find it necessary to discuss company business or otherwise communicate with clients through social networking, it is ABC Firm's policy that electronic communications or posts on social networks, blogs, posts, wikis, virtual worlds or other electronic platforms are treated as “written communications” for regulatory purposes and that such communications must always be of a professional nature.  Employees must understand that business or client related comments or posts made through social media may be considered advertising under applicable regulations and must not be misleading, fraudulent, deceptive or manipulative and will require pre-approval by the CCO prior to posting.
    • Employees are reminded that the use of social media for personal purposes may have implications for ABC Firm, particularly where the employee is identified as an officer, employee or representative of the firm. No employee may post information pertaining to any security, investment strategy or similar information without pre-approval of a direct supervisor or the CCO.”
  • 38. Policy Links
    • Examples of Social Media Policies – What to do – and Not to do
    • IBM -
    • Intel -
    • Social Media Policy – The 6 Essentials -
    • More On Policies
      • NY Labor & Employment Law Report – “A Few Tips for Drafting Social Networking Policies” - /
      • Copy of Social Media Policy for the United Space Alliance –
      • New Social Media Policy Database –examples of LOTS of policies
      • 123 Social Media – List of over 30 companies social policies -
      • Social Media Governance –List of 148 policies
  • 39. A Few Helpful RSS Feeds
    • Socialware Blog - http://
    • All Things Digital (WSJ) -
    • Investment Management Law ( )
    • Kasina – Financial industry consultants on Web and Web 2.0 - http:// /blog/
    • Wired Magazine/ - http:// /
      • Topic Specific feeds – Social Media, Media and Publishing, Legal
  • 40. LinkedIn Groups to Consider
    • BankInfo Security Forum – we may not be in the Banking business – but because of the strict regulations around it, watching what is going on with banking and security is a good way to keep on top of what may be coming – and to see best practices played out in their strict environment for dealing with Social Media
    • Social Media and Web 2.0 in Banking and Financial Services – the name says it all. There have been some interesting discussions there the last couple of months.
    • Compliance Week – they set up a LinkedIn Group to compliment their website.
    • Wired Advisor – Social Media/Web Marketing for Financial Advisors and Professionals – Wired Advisor provides different services for financial advisors that want to get into the social media space, and also hosts advisor blogs. Visit their advisor blog network showcase to see what others are doing -
  • 41. Technology Vendors
    • Technology Solutions targeted at Social Networking:
    • – Unified Security Gateway -
    • Socialware – The Social Middleware Company – http:// /
    • Custom Marketing Words -
  • 42. Monitoring Software Vendors
    • (buzzMetrics)
    May 13, 2010 © 2005-2010 National Regulatory Services
  • 43. Interesting Presentations/Articles
    • Social Media is Dead – Long Live Common Sense
    • Why Banning Social Media Often Backfires –
    • 10 Essential Social Media Tools for B2B Marketers -
    • Nobody can Stop Facebook Because Nobody Understands Facebook
    • Facebook Privacy Settings still Ignored by Many -
    • What Facebook Open Graph Means for your Business -
    May 13, 2010 © 2005-2010 National Regulatory Services
  • 44. Examples of Conversations going Viral
    • Kevin Smith and SouthWest Airlines
      • What does Kevin Smith mean for the Future of PR?
    • United and David Carroll (and his Guitar)
      • ‘ United Breaks Guitars’ – Did it Really Cost the Airline $180 Million?
      • United Airlines Complaint Song Breaks 1M Views in 4 Days
    • Bank of America and Ann Minch
      • Bank of America learns that ignoring customer complaints has its price -
    May 13, 2010 © 2005-2010 National Regulatory Services