A targeted examination letter from the Financial Industry Regulatory Authority has turned up the heat on firms using social media.
The letter, which went out to an undisclosed number of firms this month, makes six requests ranging in scope from a general explanation of social media use to the names and Central Registration Depository numbers of the top 20 producing advisors using social media. As the first broad "sweep" done on social media, it illustrates that FINRA will be holding firms to a higher standard of compliance in this relatively new communication channel, said Jimmy Douglas, director of alliances and industry relations Smarsh, a software company that helps around 20,000 clients in financial services and heavily regulated industries monitor and record their online presence.
Theyre basically saying that firms at this point who are practicing with social media have had plenty of time to work out their policy and get the technology in place to enforce those policies, and they should be adhering to what they said they were going to at this point, Douglas said. The technology has matured to a point where responsible adoption is a reasonable expectation of firms.
The letter also requests information such as the URL for each social media site used by the firm at the corporate level, the portion of the firms supervisory procedures that concern social media use, and an explanation of measures that the firm has in place to monitor compliance, including training, certification and technology.
FINRA and the Securities and Exchange Commission have closely monitored social media use by financial advisors and firms to ensure they are not publishing unauthorized advertisements, investment recommendations or promotional posts.
FINRA did not comment on the number of firms that received the letter. The regulator's director of media relations, George Smaragdis, said FINRA had issued the initial social media Regulatory Notice (10-06) over three years ago,"so it makes sense to incorporate social media reviews into our routine surveillance," he explained.
Generally, examinations, which are issued a few times each year on timely topics, are used to focus examination and pinpoint regulatory response to emerging issues, the regulator said on its site.
The goal was less about punishing firms and more about measuring how successful firms had been in rolling out social media. It could turn into something more, said Scott N. Sherman, an attorney with the law firm Baker Donelson. But a lot of times when theyre sending out notices and inquiries to many firms at the same time, its to gauge what the industry is doing and get a simple assessment.
The targeted examination letter is a broader version of what FINRA has already been requesting from firms and should come as no surprise, Douglas said. Other firms could also use the letter to anticipate what FINRA looks for when assessing social media compliance.
A lot of people have seen this coming for a while now, he said. It provides a framework for all firms out there and not exclusively those being spot checked to have a sense for what FINRA is going to be looking for and how they can measure their success.
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