Electronic Communications and Social Media in the Securities Industry

4.3.3 Electronic Communications and Social Media

In today’s digital age, electronic communications and social media have become integral tools for financial firms and professionals in the securities industry. However, with these tools come significant regulatory responsibilities and compliance challenges. This section explores the regulatory framework governing electronic communications and social media, the types of communications, supervision and compliance requirements, content standards, and their implications for the Securities Industry Essentials (SIE) Exam.

Regulatory Framework

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) provide comprehensive guidance on the use of electronic communications, including social media, blogs, and messaging apps. These regulations ensure that firms maintain the integrity of their communications and protect investors.

FINRA Regulatory Notices

FINRA has issued several regulatory notices that provide guidance on electronic communications. Notably, FINRA Regulatory Notice 11-39 addresses the use of social media websites and personal devices. Key points include:

• Firms must supervise and archive all business-related electronic communications.
• Electronic communications are subject to the same standards as traditional communications.
• Firms must implement policies and procedures to manage the use of these technologies effectively.

For further reading, you can access the full notice here: FINRA Regulatory Notice 11-39.

Types of Electronic Communications

Understanding the different types of electronic communications is crucial for compliance. These communications are generally categorized into static and interactive content.

Static Content

Static content refers to communications that do not change frequently, such as firm websites and profile pages. This type of content is treated as retail communication and requires prior principal approval before being published. Examples include:

• Company websites
• Social media profile pages
• Online brochures

Interactive Content

Interactive content involves real-time communications, such as social media posts, tweets, and comments. This content is treated as correspondence and is subject to supervision and spot-checking but may not require prior approval. Examples include:

• Tweets and social media posts
• Real-time chat messages
• Comments on blogs or forums

Supervision and Compliance

To ensure compliance with regulations, firms must establish robust supervision and compliance frameworks for electronic communications.

Policies and Procedures

Firms are required to have written supervisory procedures that address the use of electronic communications. These procedures should include:

• Guidelines on permissible content
• Approval processes for different types of communications
• Training programs for employees on the use of electronic communications

Recordkeeping

All business-related electronic communications must be retained for at least three years, regardless of whether they are conducted on personal or firm-issued devices. This requirement ensures that firms can provide evidence of compliance if needed.

Third-Party Posts

Firms are responsible for content they have adopted or endorsed, including third-party posts. Policies should address how to handle third-party comments and testimonials, ensuring they comply with regulatory standards.

Use of Personal Devices

If employees use personal devices for business purposes, firms must supervise these communications. This may involve requiring employees to use approved applications or platforms to ensure compliance.

Content Standards

Electronic communications must adhere to the same content standards as other forms of communication in the securities industry.

Fair, Balanced, and Not Misleading

All communications must be fair, balanced, and not misleading. This includes avoiding exaggerated claims, omissions, and guarantees that cannot be substantiated.

Privacy and Confidentiality

Firms must protect customer information and comply with privacy regulations. This includes ensuring that electronic communications do not inadvertently disclose confidential information.

Electronic Communications and the SIE Exam

For the SIE Exam, it is important to understand how electronic communications are regulated and categorized. Key areas to focus on include:

• The differences between static and interactive content
• Supervision, approval, and recordkeeping requirements
• Policies regarding the use of social media and personal devices

Glossary

• Static Content: Electronic communications that remain posted until changed.
• Interactive Content: Real-time communications and interactions online.
• Supervisory Procedures: Written policies outlining how a firm supervises its activities.

References

• FINRA Regulatory Notice 11-39: Social Media Websites and the Use of Personal Devices
• SEC Guidance on Social Media: Investment Adviser Use of Social Media
• FINRA’s Guide on Electronic Communications: Guidance on Blogs and Social Networking

SIE Exam Practice Questions: Electronic Communications and Social Media

By understanding the regulatory framework and compliance requirements for electronic communications and social media, you will be better prepared for the SIE Exam and your future career in the securities industry. Remember to review these concepts regularly and practice with exam-style questions to reinforce your knowledge.