TCC (Taking Care of Compliance) – A Spotlight on FINRA Social Media Compliance

By Lindsey Neal

The phrase “Taking Care of Business (TCB)” is synonymous with the King of Rock n’ Roll Elvis Presley, who utilized the acronym with a lightning bolt as his personal logo. When it comes to social media marketing, the Financial Industry Regulatory Authority (a.k.a. FINRA) has taken a page out of Presley’s book, but instead of business, the agency is far more focus on how securities firms are taking care of compliance. 

Last year, FINRA reviewed more than 66,000 advertising and sales communications, and as recently as September 2021, the agency signaled its intent to investigate “practices related to the acquisition of customers through social media channels” by the broker-dealers, capital acquisition brokers and funding portals under its purview, including “how [those] firms manage their obligations related to information collected from those customers and other individuals that may provide data to [those] firms.”  

In addition, the dissemination of “false and misleading communications to millions of individuals through a digital marketing campaign that included social media, internet advertisements, target marketing…and an incentivized referral program” was one of many compliance missteps FINRA cited in its high-profile consent order against Robinhood Financial, LLC. As a result, FINRA ultimately imposed a $57 million fine against the company and required it to pay $12.6 million plus interest in restitution to affected customers. 

Like other financial regulators, FINRA is keenly aware of the impact and reach digital marketing strategies like social media have on consumers, and as with any other form of communication, the agency expects its regulated broker-dealers to ensure all their advertisements – whether they appear digitally or in print – do not deceive or mislead consumers about the nature of the investment products being sold. Section 2200 of FINRA’s Official Rulebook covers the agency’s rules and expectations regarding broker-dealers’ duties and conflicts, which includes an extensive list of what FINRA considers to be communications with the public outlined in Section 2210. To aid broker-dealers in ensuring compliance with their social media communications specifically, FINRA has highlighted the following key areas of concern in its social media compliance overview:   

  1. Record Keeping – While FINRA does require regulated firms and their registered representatives to retain all business-related communications – regardless of the channel used – for at least three (3) years. 
  2. Professional Accounts - Personal social media use by individuals associated with a regulated entity is not subject to record keeping requirements. However, FINRA expects broker-dealers to ensure the line between personal and professional social media use is clear and distinct. 
  3. Supervision – Broker-dealers must have an oversight process in place for all business-related social media use that includes review and approval of all content distributed for business purposes. FINRA does allow for distinctions in the review process based on whether the content is static or interactive (e.g., real-time). Still, the expectation is that broker-dealers’ will have a written supervisory policy that covers training, compliance testing, corrective action planning and incident documentation procedures for this type of content. 
  4. Third-Party Content – FINRA’s record-keeping and review requirements also apply to content posted by third parties, and broker-dealers are responsible for monitoring third-party posts to ensure compliance with all FINRA rules and federal securities laws. If a broker-dealer endorses/approves content from a third party or gets involved in creating third-party content, that content is subject to FINRA’s advertising rules. This includes website content as well as social media posts. FINRA also prohibits regulated firms from linking to a third-party site if there is reason to believe the site contains false or misleading content.  
  5. Suitability – This is a unique and specific concept to FINRA compliance. Per FINRA Rule 2111, regulated firms and their employees/associates must “have a reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable for the customer.” Regarding social media, broker-dealers must have procedures for supervising digital content that recommends specific products. Firms cannot use interactive content to recommend specific products unless the content follows a pre-approved template or has been individually approved by a registered firm principal. 
  6. Fair and Balanced Communications – FINRA’s communication rule requires that all broker-dealer content, including social media, is “fair, balanced and complete;” free from “false, misleading, promissory exaggerated or unwarranted statements or claims” and appropriate for its intended audience. Content cannot omit or obscure material information on advertised products, including within footnotes, and, with limited exceptions, cannot predict or project product performance. Any statements related to the risks and potential benefits of advertised products must be clear and presented in a balanced manner. 

Of course, these are just a few of the many areas where broker-dealers must be mindful of ensuring compliance with FINRA requirements. The agency’s Advertising Regulation overview page provides a deeper dive into all aspects of compliance in this area, including social media. As its record judgment against Robinhood Financial indicates, FINRA takes its consumer protection mandate seriously, and social media marketing is a key area of concern for the agency in that regard. Thus, broker-dealers must ensure their overall communication compliance strategy includes appropriate oversight and monitoring of social media content, lest they find themselves at the wrong end of an enforcement action or regulatory fine. 

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