Communications with the Public: Mastering FINRA Rule 2210 for the SIE Exam

4.3.1 Communications with the Public

Effective communication is crucial in the securities industry, not only for maintaining transparency with clients but also for ensuring compliance with regulatory standards. This section delves into the regulatory framework governing communications with the public, specifically under FINRA Rule 2210. Understanding these regulations is essential for anyone preparing for the Securities Industry Essentials (SIE) Exam.

Regulatory Framework

FINRA Rule 2210 sets the standards for content, approval, recordkeeping, and filing of communications with the public. This rule is designed to ensure that all communications are fair, balanced, and not misleading. It applies to all broker-dealers and their associated persons, covering various forms of communication including written, electronic, and social media content.

Categories of Communication

FINRA Rule 2210 categorizes communications into three main types: Retail Communication, Correspondence, and Institutional Communication. Each category has specific rules and requirements.

Retail Communication

Retail Communication refers to any written (including electronic) communication distributed or made available to more than 25 retail investors within any 30-day period. Retail investors are defined as any person other than an institutional investor, regardless of whether they have an account with the firm.

• Examples: Advertisements, social media posts, brochures, and newsletters aimed at a broad audience.
• Approval Requirement: Must be approved by a registered principal prior to use or filing with FINRA.
• Filing Requirement: Certain retail communications must be filed with FINRA, either 10 business days prior to first use or within 10 business days after first use, depending on the content and the firm’s status.

Correspondence

Correspondence includes written or electronic communications distributed to 25 or fewer retail investors within any 30-day period. This category encompasses emails, letters, and text messages.

• Examples: Personalized emails, direct mailers, and individual letters.
• Approval Requirement: Generally subject to supervision and spot-checking but may not require prior approval unless it contains investment recommendations or promotes a product.

Institutional Communication

Institutional Communication is directed exclusively to institutional investors. Institutional investors include banks, insurance companies, registered investment companies, government entities, employee benefit plans, broker-dealers, and individuals or entities with assets of $50 million or more.

• Examples: Research reports, white papers, and presentations intended for institutional clients.
• Approval Requirement: Typically does not require prior approval but is subject to supervision and review.

Content Standards

FINRA Rule 2210 mandates that all communications must adhere to specific content standards to ensure they are fair, balanced, and not misleading.

Fair and Balanced

Communications must present a balanced view, highlighting both the potential benefits and risks associated with investments. This ensures that investors receive a complete picture and can make informed decisions.

Prohibitions

• False or Exaggerated Claims: Communications must not contain false, exaggerated, unwarranted, or misleading statements.
• Promises of Future Performance: Firms cannot guarantee or imply that past performance will recur.
• Omission of Material Facts: Communications must not omit important information that would render them misleading.

Clear and Understandable Language

The language used in communications should be clear and tailored to the audience’s level of sophistication. This involves using plain language and avoiding technical jargon unless it is explained.

Approval and Recordkeeping

Principal Approval

• Retail Communication: Requires prior approval by a registered principal (Series 24) before use or filing with FINRA.
• Correspondence and Institutional Communication: Subject to supervision and spot-checking but may not require prior approval unless it contains investment recommendations or promotes a product.

Filing Requirements

Certain retail communications must be filed with FINRA, either 10 business days prior to first use (for new firms or specific content) or within 10 business days after first use.

Record Retention

Firms must retain copies of all communications for at least three years from the date of last use. This requirement ensures that there is a record of all communications for regulatory review and compliance verification.

Social Media and Electronic Communications

The rise of social media and electronic communications has introduced new challenges for compliance. FINRA Rule 2210 provides guidance on how these communications should be handled.

Interactive Content

Interactive content, such as real-time communications on social media platforms, is treated as correspondence. This includes posts, comments, and replies that occur in real-time.

Static Content

Static content, such as profile information and pre-approved posts on social media, is treated as retail communication and may require prior approval.

Supervision

Firms must have policies and procedures in place to supervise electronic communications. This includes monitoring both interactive and static content to ensure compliance with regulatory standards.

Customer Communications and the SIE Exam

For the SIE Exam, it is crucial to understand the categories of communications and the associated requirements. Recognizing the content standards and prohibitions will help ensure compliance. Familiarity with approval, filing, and recordkeeping obligations is also essential.

Glossary

• Retail Communication: Communication distributed to more than 25 retail investors within 30 days.
• Correspondence: Communication distributed to 25 or fewer retail investors within 30 days.
• Institutional Communication: Communication exclusively to institutional investors.
• Principal Approval: Review and approval by a registered principal before communication is used.

References

• FINRA Rule 2210: Communications with the Public
• FINRA Regulatory Notices: Guidance on Social Networking Websites
• SEC Investor Publications: Advertising Requirements

SIE Exam Practice Questions: Communications with the Public

By understanding these key concepts and regulations, you will be well-prepared to tackle questions related to communications with the public on the SIE Exam. Remember to review the specific requirements and guidelines outlined in FINRA Rule 2210 and related regulatory notices to ensure compliance and effective communication practices in your future career.