Navigating the Web of Social Media

Transcription

1 Navigating the Web of Social Media SIFMA Social Media Conference, February 28,

2 Introductions Panel: Melissa Callison Vice President, Communications Compliance, Charles Schwab & Co., Inc. Douglas Preston Senior Vice President, Head of GBAM Regulatory Affairs, Bank of America Merrill Lynch Joseph E. Price Senior Vice President, Advertising Regulation/Corporate Financing, FINRA Moderator: Barbara Stettner Partner,, Allen & Overy LLP 2

3 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again. Web of Laws and Regulations Applicable to Financial Institutions Use of Social lmedia FINRA Rules Securities Statutes and SEC Regulations State Social Media Privacy Laws SEC Compliance Risk Alert FINRA Regulatory Notices Developing Case Law and Regulatory Investigations National Labor Relations Board 3

4 Federal Securities Laws & FINRA Rules Regulatory Notice Regulatory Notice FINRA Communication Rules FINRA Broker-Check Proposal Relevant SEC Statutes and Regulations SEC Compliance Risk Alert 4

5 FINRA Regulatory Notices and Regulatory Notice (January 2010): Recordkeeping Suitability Types of Electronic Forums Supervision i of Social Media Sites Third-party Posts Regulatory Notice (August 2011): Recordkeeping Supervision Third-party Posts, Third-party Links and Websites Handling of Website Data Feed Accessing Social Media from Personal Devices 5

6 Recordkeeping Regulatory Notice 11-39: Firms must retain records of communications related to their business as such under FINRA and SEC rules Whether a communication relates to business depends on facts and circumstances Analysis does not depend on device or technology used to transmit communication the content of the communication is determinative Autobiographical information posted by an associated person may or may not be considered business communications depends on content and context Recordkeeping requirements do apply to third-party posts if they are (1) received by the firm or associated persons and (2) relate to business as such Recordkeeping requirements can apply equally to static and interactive communications Technology that automatically erases or deletes content can t be used if information needed d to be recorded d and retained 6

7 Suitability Responsibilities Regulatory Notice 10-06: Facts and circumstances will determine whether a particular communication is a recommendation FINRA has provided past guidance on online suitability (1) Procedures to supervise recommendations, or (2) Prohibit unless prior approval or use of templates Other Relevant Guidance Regulatory Notice (Know Your Customer and Suitability) Regulatory Notice (Suitability and Know Your Customer ) NASD Notice to Members (Online Suitability) 7

8 Types of Interactive Electronic Forums Regulatory Notice 10-06: Content posted on a social media site may be divided between two types: Static content profile, background or wall = advertisement and requires approval prior to use Non-static, real-time, interactive communications = public appearance and no prior approval required Interactive content can become static content, and therefore subject to review and approval requirements Example: content that is copied or forwarded and posted in a static forum such as a blog or static area of a web page 8

9 Training and Supervision of Social Media Sites Regulatory Notice 11-39: Firms should adopt appropriate training and education concerning its social media policies Firms should follow-up on red flags that may indicate noncompliance by employees Example of best practices include certification of compliance with policies on a regular basis or random spot checking websites to help monitor compliance with firm policy Material changes to static content posted by a firm or associated person 9

10 Third-Party Posts, Third-Party Links and Websites, & Co-Branding Regulatory Notice 11-39: Associated persons may respond to questions from third-parties on social media sites only if authorized to do so under firm policies; preapproved template responses are allowed Links to Third-Party websites If a firm has adopted or become entangled in content on a third- party site and then provides a link to that site the firm is responsible for content that is linked A firm may not be responsible for content on an independent third- party site to which it links, if The firm does not adopt or become entangled with the content of the third-party site; and The firm does not know or have reason to know that the site contains false or misleading information 10

11 Use of Personal Devices Regulatory Notice 11-39: Firms may ypermit associated persons to use personal devices (whether owned by person or business) for business communication Firm must be able to retain, retrieve and supervise business communications regardless of device ownership Firms should be able to separate business and personal communications e.g., provide a software application for a secure portal with training 11

12 FINRA Rules on Communications with the Public On February 4, 2013, FINRA s new rules governing communications with the public became effective. All communications sent to or received by broker-dealers and their representatives, even those sent through social media, are potentially subject to new Rules , including new content standards. Rule 2210 encompasses and reorganizes the previous NASD rules and interpretive materials governing g communications into three types of communications: institutional communications, retail communications and correspondence. Retail Communication: means any written (including electronic) communication that that is distributed or made available to more than 25 retail investors within any 30 calendar-day day period. Advertisements e s are considered ed retail communications, ca o unless distributed to less than 25 retail investors. Correspondence: means any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Institutional communication: means any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include internal communications. 12

13 FINRA Rules on Communications with the Public Firms should be aware that their social media content is subject to the following FINRA content standards: General Standards apply to all communications. Similar to the NASD Rules, Rule 2210 requires all firm communications to be based on principles of fair dealing and good faith, to be fair and balanced, and to provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry or service. Firms are prohibited from omitting any material fact or qualification if the omissions, in light of the context of the material presented, would cause the communication to be misleading. In addition, firms must consider the nature of the audience to which a communication will be directed and to provide details and explanations appropriate to the audience. Testimonials applies to retail communications and correspondence A retail communication or correspondence that t includes a testimonial ti i that t concerning the investment t advice or investment performance of a firm or its products must disclose the following: (i) the fact that the testimonial may not be representative of the experience of other customers, (ii) the testimonial is no guarantee of future performance or success, and (iii) if more than $100 is paid for the testimonial, the fact that it is a paid testimonial. Recommendations apply to retail communications Retail communications that include a recommendation of securities must have a reasonable basis for the recommendation, and must provide available investment information supporting the recommendation. A member must also disclose, for example, whether at the time of the communication was published, the member was making a market in the recommended security, or whether it has a financial interest in any of the securities recommended. 13

14 FINRA BrokerCheck Proposal In 2012, FINRA sought public comment on its proposal to require member firms to include a reference and link to BrokerCheck on their websites. The proposal is part of a broader review FINRA conducted concerning how to facilitate and increase investor use of BrokerCheck. 14

15 Other Relevant Laws and Regulations Non-Securities Laws and Regulations - State Social Media Privacy Laws - National Labor Relations Board decisions i and guidance (to be discussed during the Compliance Strategies for Social Media, Mobile Devices and Other Communications Panel ) - Children s Online Privacy Protection Act Securities Laws and Regulations - Antifraud Provisions (e.g., Securities Act of 1933 Section 17(a); Securities Exchange Act of 1934 ( Exchange Act ) Section 10(b) and Rule 10(b)-5; Investment Advisers Act of 1940 ( Advisers Act ) Sections 206(1), 206(2), and 206(4) and Rule 206(4)-1) - Compliance Provisions (Advisers Act Section 206(4) and Rule 206(4)-7) - Recordkeeping Provisions (Exchange Act Section 17(a) and Rules 17a-3 and 17a-4; Advisers Act Section 204 and Rule 204-2) 15

16 Social Media & State Privacy Laws California Delaware Illinois Applies to employers and educational institutions. Prohibits employers and academic institutions from requesting an employee or student to: disclose a username or password for the purpose of accessing personal social media; access personal social media in the presence of the employer s employee or representative; or divulge personal social media information. Prohibits academic institutions from requiring or requesting that a student or applicant disclose any password or other related account information in order to gain access to a student s social networking site profile; or request that a student log into social networking site, account, etc. to provide access Academic institutions may not require or request a student tto add the institution to his or her social networking site profile or account; and cannot monitor or track a student s communication device. The statute expressly prohibits academic institutions from accessing a student s social networking profile or account indirectly through any other person who is a social networking contact of the student. Employers may not request or require an employee to provide a password or other related account information in order to gain access to employee s profile on a social networking website, or to demand access in any manner to an employee s profile or account on a social networking website. Maryland Michigan New Jersey Employers may not request or require that an employee or applicant disclose any user name, password, or other means for accessing a personal account or service through an electronic communications device. Applies to employers and academic institutions. Bars employers and academic institutions from requesting an employee or student to grant access to, allow observation of, or disclose information that allows access to or observation of the employee or student s personal internet account. $1,000 fine for violations. Prohibits academic institutions from requiring a student to provide or disclose any user name or password or provide access to a personal account or service through an electronic communications device, or inquire i as to whether a student t or applicant has an account or profile on a social networking website. 16

17 Pending State Social Media Privacy Legislation Arizona Nebraska Colorado New Hampshire Connecticut New Jersey New Mexico Georgia New York Hawaii North Dakota Illinois Oregon Kansas Rhode Island Maine Texas Massachusetts Utah Minnesota Vermont Missouri Washington Montana 17

18 SEC Guidance on Investment Adviser Use of Social Media In recognition of the rapidly accelerating use of social media by the financial i services industry, the SEC s Office of Compliance Inspections and Examinations ( OCIE ) published a Risk Alert that contained staff observations regarding g compliance obligations and social media usage. Compliance Program: The staff urged investment advisers to consider whether compliance programs and procedures should specifically address social networking activity, for example, by establishing usage guidelines, content standards, d monitoring, i approval and certifications procedures. 18

19 SEC Guidance on Investment Adviser Use of Social Media Third-Party Content: The staff noted the compliance obligations implicated by third-party t postings on firm and third-party social media sites. For example, the staff indicated that the use of social plug-ins such as the like button could be a testimonial under the Advisers Act. Recordkeeping Responsibilities: The staff reiterated that the recordkeeping obligation does not differentiate between various media. For example, RIA s that communicate through social media must retain records of those communications if they contain required records under the Advisers Act. 19

20 Developing Case Law & Regulatory Investigations In re Anthony Fields The SEC filed cease and desist proceedings in January 2012 alleging that Fields made fraudulent offers of fictitious securities through h various forms of social media, and published false and materially misleading information on his firms websites. The SEC issued an Order in December 2012 finding, among other things, Fields violated Exchange Act Sections 17(a)(1) and 17(a)(3), operated as an unregistered broker-dealer, and violated the antifraud provisions of the Advisers Act. Netflix In December 2012, Netflix disclosed that the company and its Chief Executive Officer each received a Wells Notice from the SEC s Division of Enforcement. The SEC is concerned that the CEO violated Regulation Fair Disclosure by posting material non-public information on Facebook. 20

21 Thank you. These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. 21