RETENTION OF SOCIAL MEDIA RECORDS IN THE FINANCIAL INDUSTRY A BRIEF OVERVIEW

Transcription

1 RECORDS & DOCUMENT MANAGEMENT EXPERTS RETENTION OF SOCIAL MEDIA RECORDS IN THE FINANCIAL INDUSTRY A BRIEF OVERVIEW By: Soo Y. Kang Director, Consulting Division March 21, Zasio Enterprises, Inc. All rights reserved.

2 SOCIAL MEDIA AND RECORDS RETENTION IN THE FINANCIAL INDUSTRY A BRIEF OVERVIEW Page 2 of 5 The rise in technology, particularly social media, created a shift in how companies communicate and interact with its target audience. Social media sites such as Facebook, Twitter, and YouTube provide a medium to connect via blogs, posts, newsfeeds, and videos. According to a recent study, Fortune Global 100 companies were present on Facebook (74%), Twitter (82%), and YouTube (79%). 1 Leveraging social media as a business tool is not unexpected when you take a look at the number of users: 1.06 billion monthly active users and 618 million average daily active users on Facebook as of December million accounts with 180 million active users on Twitter 3 Over 800 million active users every month watching over 4 billion hours of video on You Tube 4 Now, with a touch of a button, a traditional two-party discussion is transformed to an interactive multi-party conversation between the company, its clients, and casual observers. All of this with a low operating cost as most social media platforms are free. In implementing social media strategies, however, considerations regarding the adequate retention of these records have taken a back seat.

3 SOCIAL MEDIA AND RECORDS RETENTION IN THE FINANCIAL INDUSTRY A BRIEF OVERVIEW Page 3 of 5 For example, a recent survey in the financial services industry revealed that only 21% had a social media archiving system with 79% reporting that either their firm did not have a system in place or did not know if there was such a policy. 5 The failure to properly capture and preserve social media activities runs the risk of being out of compliance with various regulatory authorities. In order to assist its members, various financial organizations have issued guides to help navigate the retention of these social media records. While this white paper does not address each and every guide, some of the pertinent are discussed below. In January of 2010, the Financial Industry Regulatory Authority (FINRA) issued its initial guidance on blogs and social networking websites. Further clarification followed in August of 2011 with Regulatory Notice 11-39, which provided, specific to recordkeeping: The failure to properly capture and preserve social media activities runs the risk of being out of compliance with various regulatory authorities. Rule 17a-4(b) under the Securities Exchange Act of 1934 (SEA) requires broker-dealers to preserve certain records for a period of not less than three years, the first two in an easily accessible place. Among these records, pursuant to SEA Rule 17a-4(b)(4) are [o]riginals of communications received and all communications received and copies of all communications sent (and any approvals thereof) by the member, broker or dealer (including inter-office memoranda and communications) relating to its business as such, including all communications which are subject to rules of a self-regulatory organization of which the member, broker or dealer is a member regarding communications with the public. The SEC has stated that the content of an electronic communication determines whether it must be preserved. 6 Regulatory Notice further clarified that the ownership of the device under which the business communication is made i.e., owned by the firm or associated person, is irrelevant. If the communication falls under the scope of a business communication then the firm is charged with the responsibility of retaining, retrieving, and supervising such communications. 7

4 SOCIAL MEDIA AND RECORDS RETENTION IN THE FINANCIAL INDUSTRY A BRIEF OVERVIEW Page 4 of 5 Recently, the Securities Exchange Commission (SEC) approved FINRA s proposed rule change to adopt National Association of Security Dealers (NASD) Rules 2210 and 2211 and related interpretive materials as FINRA Rules 2210 and (collectively Communication Rules ). The Communication Rules recently went into effect on February 4, If the communication falls under the scope of a business communication then the firm is charged with the responsibility of retaining, retrieving, and supervising such communications. Under the Communication Rules, three (3) categories of communication are now recognized: (1) Institutional Communication; (2) Retail Communication; and (3) Correspondence. 9 Specific to the retention of records, the Communication Rules set forth the retention of retail and institutional communications as set forth in Rule 17a-4 of the Securities Exchange Act of These records must include: A copy of the communication and dates of first and, if applicable, last use; The name of any registered principal approving the communication and the date of approval; If the communication is not principal approved prior to first use, the name of the person who prepared or distributed the communication; The source of statistical tables, charts, graphs, and other illustrations used in the communication; and If a retail communication is exempt from principal approval, the name of the firm that filed the communication with the FINRA Advertising Department, and a copy of the review letter. 10 Most recently, in response to requests from industry and consumer groups, the Federal Financial Institutions Examination Council ( FFIEC ) issued its proposed guidelines entitled Social Media: Consumer Compliance Risk Management. This Guideline addresses social media risk for the supervised entities and provides direction to manage those risks. Specific to the topic of records management, the Guideline provides that compliance programs must take into account appropriate internal controls to ensure effective risk management and compliance with recordkeeping and reporting requirements under the BSA [Bank Secrecy Act]. 11 This Guideline is at the initial proposal stage.

5 CONCLUSION: The development of a social media policy covering the retention of records is a critical first step towards compliance with these regulatory mandates. While the challenges to creating an adequate policy are numerous, the key take away from the above is that content, rather than the medium, drives the retention of records. Once the issue of medium is taken off the table, the focus may be directed towards those accessing social media, training those individuals to identify the record/communication, and developing a system to properly capture and retain those records.... content, rather than the medium, drives the retention of records. 1 Burson-Marsteller, Global Social Media Check-Up 2012, at Marsteller%20Global%20Social%20Media%20Check-Up% pdf 2 Facebook s Financial Releases, Fourth Quarter and Full Year 2012 Results (January 30, 2013), at 3 Ingrid Lunden, Twitter May Have 500M+ Users But Only 170 Million Are Active, 75% on Twitter s Own Clients, TechCrunch (July 31, 2012), at 4 Ryan Lawler, YouTube Is Launching A Redesign To Reduce Clutter And Put Videos Front And Center, TechCrunch (December 6, 2012), at 5 Quest CE Case Study, A Deeper Look at Social Media Compliance (posted October 17, 2012), at company/news/2012/10/17/a-deeper-look-at-social-media-compliance-a-quest-ce-white-paper 6 FINRA Regulatory Notice 11-39, Social Media Websites and the Use of Personal Devices for Business Communications, Guidance on Social Networking Websites and Business Communications, pg. 2 (August 2011). 7 FINRA Regulatory Notice 11-39, pg FINRA Regulatory Notice 12-29, Communications With the Public, SEC Approves New Rules Governing Communications With the Public, pg. 1 (December 2012). 9 FINRA Regulatory Notice 12-29, pg FINRA Regulatory Notice 12-29, pg Federal Financial Institutions Examination Council, Docket No. FFIEC , Social Media: Consumer Compliance Risk Management Guide, pg. 22 RECORDS & DOCUMENT MANAGEMENT EXPERTS Zasio Enterprises, Inc. is one of the nation s leading records management software and consulting companies. The firm was founded based on one vision: to provide organizations in both the public and private sector with affordable computer software that establishes total life cycle management and control over their records. In 1995, the company extended the range of its records management services when it established its Records Management Consulting Division. The strategic objective behind this decision was to offer a total solution both software and high-level expertise to those clients that require it. Call the experts at Zasio to discuss your Records Information Management questions and challenges today. The information contained in this article is provided for general information purposes only and with the understanding that the author is not engaged in rendering legal advice. You should not act or rely on any information contained herein without first seeking the advice of an attorney , Opt. 1 sales@zasio.com