June 26, 2017
On April 25, 2017, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 17–18, Social Media and Digital Communications (the “Regulatory Notice”), addressing certain frequently asked questions regarding the use of social media and digital communications by FINRA member broker-dealers (the “FAQs”). The Regulatory Notice expands upon previously-issued FINRA guidance regarding the use of social media and digital communications within the context of various SEC and FINRA rules, including, but not limited to FINRA Rule 2210 (Communications with the Public) (“Rule 2210”), as well as the recordkeeping rules promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), and FINRA Rule 4511 (Recordkeeping). In the Regulatory Notice, FINRA acknowledges that developments in, and the expanded use of, social media and digital communications by broker-dealers since the last-published FINRA guidance on the use of social media by member firms in 2011 necessitated the updated guidance. The principal topics addressed by the FAQs are: (a) text messaging, (b) personal versus business communications, (c) third-party content and hyperlinks, (d) native advertising, (e) testimonials and endorsements and (f) links to BrokerCheck.
The FAQs reiterate that the recordkeeping requirements of Rule 17a-4, under the Exchange Act (“Rule 17a-4”) also apply to digital communications, including communications made through text messaging and chat services, to the extent that the content of the communications relates to the firm’s business. As a result, prior to the use of text messaging and chat services in the conduct of the firm’s business, firms must ensure that they are able to capture and retain records of these communications.
The FAQs clarify that only “business communications,” or communications relating to the products or services of the firm, are subject to the filing and content requirements of Rule 2210. “Personal communications,” or communication that “does not concern the firm’s products or services,” would not be subject to Rule 2210.
The FAQs clarify a number of points regarding the use of hyperlinks on a firm’s website or shared via social media. As a general matter, a third-party post on a social media site established by a FINRA member firm would not be considered a communication by the firm or its personnel, and Rule 2210 requirements would not apply. However, under certain circumstances, third-party posts become attributable to the firm and are considered communications by the firm with the public, and subject to Rule 2210, under an “adoption or entanglement theory.” FINRA notes that linking to, or sharing, specific content is an adoption by the firm of such content, and must be evaluated in the same manner as communications created by or on behalf of the firm. Whether links embedded in the linked content are also deemed to be adopted or endorsed by the firm is a facts-and-circumstances determination, which takes into account factors such as: whether the firm has influence or control over the links embedded in the linked content, and whether the content that the firm originally linked or shared is merely a compilation of other links (the FAQs clarify that in the case of the latter, the firm will have adopted the content of the embedded links).
The FAQs also provide guidance regarding whether hyperlinking to or sharing an independent third-party website is an adoption by the firm of such content. Here, FINRA explains that whether the content is adopted is fact-dependent, with two critical factors being whether the link is “ongoing” and whether the firm has influence over the content. A link is ongoing when:
If these factors are present, and so long as the firm has no control over the content, the content of the third-party website is not attributable to the firm through an entanglement or adoption theory. The language the firm uses to introduce the link to the third-party website, however, must still comply with communications rules, and the firm may not link or share content that it knows or has reason to know is false or misleading.
The term “native advertising” references advertising that mimics the native content of the website where it appears (e.g., an advertisement that appears on a news website that is presented to look like a news article). The FAQs state that native advertising is a permissible form of advertisement for FINRA member broker-dealers, provided that such advertising complies with the requirements of Rule 2210. As a preliminary matter, this would require that the content of the advertisement be fair, balanced and not misleading. Additionally, when a firm has arranged for comments or posts to be made by an individual that promotes the firm or its products or services (FINRA defines these individuals as “influencers”), these communications should be clearly identified as an advertisement and otherwise comply with FINRA Rule 2210.
FINRA does not consider unsolicited opinions of third parties to be either communications of the firm for purposes of Rule 2210 or testimonials subject to the requirements of Rule 2210(d)(6). If the firm or a registered representative “likes” or shares the third-party’s favorable comments, however, FINRA deems such content as having been adopted by the firm or the representative and therefore subject to the communications, recordkeeping and supervision rules.
The FAQs also provide guidance regarding how to provide the disclosures that are required to accompany testimonials in an interactive electronic communication, such as a social media post. Such disclosures may be provided in the communication itself in close proximity to the testimonial, or through accompanying the testimonial with a clearly marked hyperlink, using language such as “important testimonial information.” The FAQs remind firms that are also registered as investment advisers and subject to the Investment Advisers Act of 1940 (the “Advisers Act”), that the Advisers Act specifically prohibits the use of any advertisement that refers to a testimonial concerning an investment adviser or any advice, analysis, report or other service rendered by the investment adviser.
The FAQs clarify that member firm-created apps are not subject to the requirement to provide a readily apparent link to FINRA’s BrokerCheck, because Rule 2210(d)(8) specifically references “websites.” However, if the app links to or displays a firm’s webpage, that webpage would be required to include a link to BrokerCheck, notwithstanding the fact that the content is delivered through an app.
Given the rapidly changing landscape of digital communications, the Regulatory Notice provides much-needed clarity regarding how social media and digital communications fit within the requirements of the various FINRA and SEC rules. In addition, the FAQs provide welcome additional guidance to firms and their registered representatives as they weigh the business benefits against the supervisory and compliance risks associated with social media and digital communications.
Blog – a website that contains online personal reflections, comments, and often hyperlinks, videos and photographs provided by the writer.
Followers – a designation for individuals that elect to receive regular content updates from another individual or entity’s social media account or platform.
Deep Link – a hyperlink providing direct access to specific content on a website, instead of to the website’s homepage.
Hyperlink – an electronic link providing direct access from one distinctively marked place in a hypertext or hypermedia document (e.g., a website) to another in the same or a different document.
Influencer – an individual who, at the direction of a firm, makes comments or posts that promote the firm or its products or services. Influencers are often individuals, with substantial social media presence, such as having a large number of followers, or a personal website or blog that receives substantial traffic.
“Like” – a now generalized term referencing sharing or showing endorsement or approval of content on a website, app, or social media. The ability to publicly “like,” or display approval of, a posting or other content, is a regular feature of social media platforms.
Native Advertising – advertising content that bears a similarity to the news, feature articles, product reviews, entertainment and other material that surrounds it online (e.g., an advertisement that appears on a news website that is presented to look like a news article).
Ongoing Links – a link is “ongoing” when (a) it is continuously available to investors who visit the member firm’s site; (b) investors have access to the linked site regardless of whether the content contains favorable material about the firm; and (c) the linked site could be updated or changed by the independent third-party, and investors would still be able to access the site through the link on the member firm’s site.
Third-party Post – a post made by a third party on a social media site, app, or website established by the firm or its personnel.
Traffic – a quantitative measure that reflects the volume of individuals who visit a website over a given time period.
 FINRA Regulatory Notice 17–18 is available at https://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory—Notice—17–18.pdf.
 For more information regarding FINRA regulation of broker-dealer communications with the public, you may wish to refer to: “FINRA Proposes to Permit Use of Predictions/Projections of Investment Strategy Performance” (March 9, 2017), currently available at: http://www.shearman.com/en/newsinsights/publications/2017/03/finra—permit—use—of—predictions—projections, and “New Rules Regarding Communications With the Public by Brokers and Dealers Take Effect” (November 1, 2003), currently available at: —http://www.shearman.com/en/newsinsights/publications/2003/11/new—rules—regarding—communications—with—the—publ__.
 See FINRA Regulatory Notice 10–06, available at http://www.finra.org/sites/default/files/NoticeDocument/p120779.pdf, and Regulatory Notice 11–39, available at https://www.finra.org/sites/default/files/NoticeDocument/p124186.pdf.
 Rule 17a–4(b) requires that all broker-dealers retain records of communications that relate to their “business as such.” This is interpreted by the U.S. securities regulators to include electronic communication regardless of form.
 Rule 2210 sets forth various filing and content standards for broker-deal communications with the public. As a general matter, Rule 2210 requires that all communications by broker-dealers must be fair, balanced and not misleading.
 The Regulatory Notice does not further define either “personal communication” or “business communication.” Therefore, it will fall to internal policy-makers at broker-dealers, to define and distinguish between personal versus business communications, and to train associated persons accordingly.
 In this regard, the Regulatory Notice gives the examples of reposting a microblog (e.g., Twitter) post that promotes content through a link, or linking to a website made up largely of a link or links to other content.
 Specifically, retail communications must comply with the disclosure requirements of Rule 2210(d)(3):
(i) The communication must prominently disclose the name of the member, or the name under which the member’s broker-dealer business primarily is conducted as disclosed on the member’s Form BD, and may also include a fictional name by which the member is commonly recognized or which is required by any state or jurisdiction;
(ii) The communication must reflect any relationship between the member and any non-member or individual who is also named; and
(iii) If the communication includes other names, it must reflect which products or services are being offered by the member firm
 Rule 2210(d)(6) contains specific requirements applicable to the use of testimonials by broker-dealers. In general, Rule 2210(d)(6) requires that:
(i) For any communication pertaining to a technical aspect of investing, the person providing the testimonial must have the requisite knowledge and experience to form an opinion, or
(ii) For communications concerning the investment advice or investment performance of a member or its products, the communication must prominently disclose that the testimonial may not be representative of the experience of other customers, that it is not a guarantee of future performance, and that it is a paid testimonial if the value paid for the testimonial was more than $100.
 “Blog,” Meriam-Webster Dictionary, https://www.merriam—webster.com/dictionary/blog
 “Hyperlink,” Meriam-Webster Dictionary, https://www.merriam—webster.com/dictionary/hyperlink