FINRA Offers Clarification and Acceptance

It could be easy to miss on the second-to-last page of Regulatory Notice 11-39, issued by the Financial Industry Regulatory Authority (FINRA) – “FINRA recognizes that the development of new technologies can facilitate the ability of associated persons to perform their responsibilities and, in the case of registered representatives, to serve their clients.”  But to Stacey Haefele, CEO of HNW, Inc., a marketing firm specializing in high-net-worth financial services, this was one of the most important messages in the notice.

“I was glad to see FINRA frame [mobile technologies] as transformative; they can help financial professionals do their jobs better, rather than something to regulate,” she commented to PLANADVISER.

The notice did not provide any new regulations, said Haefele; rather it sought to clarify guidance that was published 18 months ago in Regulatory Notice 10-06 (see “FINRA Issues Guidance about Social Networking”).  For instance, this notice “extended the boundaries about what’s acceptable…the January 2010 notice didn’t say much, if anything, about personal devices, and this notice does. It’s acceptable to use iPads or smartphones, even if they belong to the company. It doesn’t matter whose device it is–it matters what you’re saying.”

Another area that needed clarification was around the terms “adopted” and “entangled” with regards to third-party links. The original notice said the following: “Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content. The SEC has referred to circumstance (1) above as the “entanglement” theory (i.e., the firm or its personnel is entangled with the preparation of the third-party post) and (2) as the “adoption” theory (i.e., the firm or its personnel has adopted its content).”

To expand on this notion of “adopted” or “entangled” material, FINRA says in Notice 11-39: “When is a firm not responsible for the content on a third-party site to which it links? A firm may establish a link to the site of an independent third party without assuming responsibility for the content of that site under NASD Rule 2210 if (1) the firm does not “adopt” or become “entangled” with the content of the third-party site; and (2) the firm does not know or have reason to know that the site contains false or misleading information.”

However, Haefele still sees some room for confusion in this explanation.  Is “liking” a page on Facebook – giving it a virtual “thumbs up” – enough evidence to show that your company has “adopted” that third-party? What about following the company on Twitter or being linked with them on LinkedIn? While these finer points may seem confusing, Haefele says what FINRA is really looking for is that companies have policies and training programs in place and adhere to them strictly. “It is up to each company to do what they think is right. Create a policy and educate your employees on what it entails,” she concluded.