Client Alert: What The Changes To FINRA Rule 2210 Mean

FINRA’s Guidance on Social Networking Websites and Business Communication (17-18)

On April 25, 2017 FINRA released its new guidance for Rule 2210 (Communication with the public). The rule includes all communications between a business and a private person when the content relates to the product or the service of a firm. Firms then have to retain records of the business communication made. Rule 2210 only applies when the content of a personal communication relates to the products or services of the firm. Regarding hyperlinks and sharing’s, the firm only adopts the content of the shared link, if the intention is given, that the firm has control over the shared content.

The guidance contains a question and answer part clarifying that records have to be made and retained for business communications made through text messaging apps or chat services, even when personal devices were used for business communication. Before communicating through a text messaging app or a chat service, the firm has to ensure that it can retain record those communications as required by FINRA Rule 4511.

If a firm shares or links to specific content posted by an independent third-party, such as an article or a video, the firm has adopted the content and would be responsible for ensuring that the content complies with the same standards as communications created by the firm.

However, if the shared or linked content itself contains links to other contents, the firm has not adopted the content solely by sharing or linking a page with a contained link. The linked content is only taken over, if additional circumstances occur, for example, when the firm has influence or control over the topic of the linked link.

Through the use of a link to a section of an independent third-party website, a firm only adopted the content, if two facts occur:

  • It is an ongoing link, which means the link is continuously available to investors who visit the firm’s site, 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.
  • The firm needs to have influence or control over the content of the third-party site.

Native advertising can be used by firms if it complies with the applicable provisions of FINRA Rule 2210. Additionally the communication has to be fair, balanced and not misleading. Therefore native advertising has to disclose the firm’s name, reflect accurately any relationships 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).

If a firm arranges a comment or post which is made by an individual (an “influencer”) for promoting the firm’s brand, products or services, the firm is entangled with the resulting communication and has to follow FINRA Rules, has to ensure, that communication is not misleading or false.

Therefore firms should clearly identify the communication as advertisements and follow FINRA Rule 2210.In case a registered representative of a firm who established a business-related site on a social network that is supervised and retained by the broker-dealer has a contact to an individual who gives an opinion on the social network the users professional capability.

Unsolicited third-party opinions or comments posted In a social network are not regarded as communication of the broker-dealer or the representative by FINRA. Thus FINRA Rule 2210 does not apply. This understanding is also been verified by FINRA Rule 2210 (d)(6).

But by linking or sharing a comment, the representative then adopts the comment and has to follow FINRA communication rules, including the prohibition and misleading or incomplete statement or claims, the testimonial requirements and the supervision and recordkeeping rules.

A registered representative or firm can include the disclosure required for a testimonial in an interactive communication by marking a clear hyperlink accompanying the testimonial using language such as “important testimonial information”, provided that the testimonial is not false, misleading, exaggerated or promissory.

If an unaffiliated third-party publisher posts an online directory of businesses and includes information about registered representatives of a broker-dealer which are false and neither the firm nor the registered representative paid for the post, the error can be corrected by the firm or the representative without being qualified as communication. Even posting the correct information as a comment on the post is not an adoption of the incorrect listing.

An app which was created by a firm does not have to include a readily apparent reference and hyperlink to BrokerCheck, which is required for websites. The relevant Rule 2210 (d)(8) specifically refers to websites. But if the 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.

Conclusion:

Since this is a technical area, that engages a myriad of Rules, including record retention, advertising, communications with the public and supervision, firms should consider additional training, careful review and revisions to WSP’s.

Close corporation between firms CTO and CEO is essential to assure compliance with Rule 2210 and 4511. Linked content can be expected to create confusion unless the firm has the technical expertise required, to make the “influence” or “control” judgement.

Paul Lieberman has more than three decades of experience preparing and revising policies and procedures, developing effective supervision structures, leading and coordinating internal investigations and defending regulatory enforcement proceedings before the SEC, FINRA and state securities departments/commissions.

Laura K. Kues assisted in the preparation of these Alerts. Laura graduated from Johannes Gutenberg University in Mainz (Germany) in June 2015 (First State Exam) with the priority area in Competition Law Intern at Eaton & Van Winkle, LLP (USA) during the 2017 German legal clerkship at the district court of Mainz (Germany).

© Eaton & Van Winkle, LLP, 2017. All rights reserved. This memorandum was prepared as a service to clients and friends of the firm to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice.