In light of trends in emerging technologies and communications innovations, FINRA has issued new guidance regarding the application of FINRA rules governing communications with the public to social media and digital communications. It should be noted that in the Retrospective Rule Review Report: Communication with the Public, a report published by FINRA in December 2014, FINRA observed that it should provide additional guidance to member firms on the use of social media and digital communications, and while FINRA issued substantial guidance in 2010 and 2011, Regulatory Notice 17-18 (“Notice”) is the first guidance issued by FINRA regarding this subject matter since 2013.
With respect to trends in usage, it was noted in the Notice that an October 2015 study from the Pew Research Center indicated that 65 percent of adults use social networking sites as compared to 7 percent in 2005., Additionally, social media and other websites frequently enable the use of “native advertising,” which has been defined as advertising content that matches the form and function of the platform on which it appears and media articles have predicted that within the next five years’, revenue earned from native advertising in online publications such as periodicals and social media sites will outstrip other forms of online display advertising.
Social Media Trends
Furthermore, the Pew Research Center noted that based on a telephone survey of 2,002 adults conducted in December 2014, 64 percent of American adults own a smart phone of some kind, 97 percent of smartphone owners pooled used text messaging at least once during the 10-day study period in November 2014 making it the most widely used basic feature or application. In April 2016, Facebook Messenger reported 900 million monthly active users, and WeChat reported in March 2016 that it had added nearly 200 million monthly active users in the previous year.
Consistent with these trends, member firms raised new, and old questions, regarding the application of FINRA rules to social media and digital communications, and FINRA provided guidance in a question and answer format. The Notice was not intended to alter the principles or the guidance provided in prior Regulatory Notices, but rather supplement the prior guidance in light of both changing technology and the usage of social media platforms. In any event, the topics covered in the Notice included text messaging, hyperlinks and sharing, native advertising, testimonials, and endorsements, and the correction of third-party content.
With respect to text messaging, the guidance was a reaffirmation of the current situation. Thus, FINRA confirmed that every firm that intends to communicate, or permit its associated persons to communicate, with regard to its business through a text messaging application or chat service must ensure that it can retain records of those communications as required by SEA Rules 17a-3 and 17a-4 and FINRA Rule 4511. However, it was interesting to note that if an associated person posts information about the firm’s sponsorship of a charitable event, a human-interest article, an employment opportunity, or employer information covered by state and federal fair employment laws, that content may not be subject to Rule 2210, as the content does not relate to the products or services of the firm.
Hyperlinks and Sharing
As to hyperlinks and sharing, FINRA noted that to the extent a firm shares or links to specific content posted by an independent third-party such as an article or video, the firm has adopted the content and would be responsible for ensuring that, when read in context with the statements in the originating post, the content complies with the same standards as communications created by, or on behalf of, the firm. However, to the extent a firm shares or links to content that in turn links to other content over which the firm has no influence or control, the firm would not have adopted the other content. Notwithstanding that, if a firm shares or links to content that in turn links to other content over which the firm has influence or control, the firm would then have adopted that other content.
Third-Party Website Content
With respect to determining whether a firm has adopted the content of the third-party website through the use of a link is fact dependent. Two factors critical to the analysis include: (1) whether the link is “ongoing” and (2) whether the firm has influence or control over the content of the third-party site. The firm has not adopted the content if the link is “ongoing,” meaning: the link is continuously available to investors who visit the firm’s site, i.e., investors have access to the linked site whether or not it contains favorable material about the firm; and the linked site could be updated or changed by the independent third-party and investors would nonetheless be able to use the link. However, if the firm has any influence or control over the content of the third party site, then the firm would be entangled with its content.
With respect to native advertising, it was noted that native advertising has been defined as content that bears a similarity to the news, feature articles, product reviews, entertainment and other material that surrounds it online. For example, native advertising may be a video or article posted by an advertiser on an independent third party publisher’s site that is presented alongside, and in a manner similar to, content posted by the publisher. To that end, FINRA does not believe that native advertising is inherently misleading under FINRA’s communications rules, and as such, firms may use native advertising that complies with the applicable provisions of FINRA Rule 2210, including the requirements that firms’ communications be fair, balanced and not misleading. In particular, native advertising must prominently disclose the firm’s name, reflect accurately any relationship between the firm and any other entity or individual who is also named, and reflect whether mentioned products or services are offered by the firm as required by Rule 2210(d)(3).
Testimonials and Endorsements
As to testimonials and endorsements, FINRA does not regard unsolicited third-party opinions or comments posted on a social network to be communications of the broker-dealer or the representative for purposes of Rule 2210, including the requirements related to testimonials in paragraph (d}(6). However, FINRA did note that when a representative “likes” or “shares” third-party comments, the representative has adopted them and they are subject to the communications rules, including the prohibition on misleading or incomplete statements or claims, the testimonial requirements noted above, and the supervision and recordkeeping rules. FINRA also noted that the disclosures required for a testimonial in an interactive electronic communication may be provided in the interactive electronic communication itself in close proximity to the testimonial or the disclosures may be made through a clearly marked hyperlink accompanying the testimonial using language such as “important testimonial information,” provided, of course, that the testimonial is not false, misleading, exaggerated or promissory.
With respect to the correction of unaffiliated third-party content, such as an online directory of businesses which includes information about registered representatives of a broker dealer that contains incorrect information (e.g. misspelled name, incorrect phone number, web-site or phone number), the fact that the firm or representative contacted the publisher would not mean that the corrected listing is a communication of the firm or the representative. This assumes however that the firm nor the registered representatives requested, solicited or paid for the posting of these listings.
Finally, FINRA noted that the regulatory obligation to have a link on the initial web page that the firm intends to be viewed by retail investors does not include the obligation for a readily apparent reference and hyperlink to BrokerCheck on an app created by a firm. However, FINRA did observe that if an app accesses and displays a webpage on the firm’s website that is required to include the BrokerCheck link under the rule, the firm must ensure that the link is readily apparent when the page is displayed through the app.