Advertising and Marketing Regulation | FINRA Rules

FINRA Provides Guidance on Social Media and Business Communications

FINRA issued Regulatory Notice 17-18, which compliments previously issued Regulatory Notices 10-06 and 11-39, by providing additional guidance on the application of FINRA Rule 2210 (Communications with the Public) to social media and digital communications.  The notice reiterates past guidance related to recordkeeping, third-party posts, and hyperlinks to third-party sites and provides new insight in the way of 12 Q&As addressing:

  • Text Messaging – If text messaging is used by a firm or its representatives to communicate with investors, the text records must be retained. The content of the communication, not the method of transmission, is what matters when determining whether to keep it.
  • Personal Communications – If a registered representative shares information that does not relate to products or services of the firm, then the communication n is not covered by Rule 2210. For example, if a registered representative posts a link on the firm’s sponsorship of a charitable event, this information would not be subject to Rule 2210.
  • Hyperlinks and Sharing – When a firm shares or links to specific content, FINRA takes the view that the firm has adopted that content, and must ensure that the adopted content complies with Rule 2210’s standards. But if the firm links to a third-party site that is dynamic, ongoing and not influenced by the firm, then the firm is not considered responsible for the content.  FINRA went on to clarify, however, that firms may not link to any third-party site if the firm knows or has reason to believe that the site contains false or misleading content.

The determination of whether a firm has adopted the content of a third-party website requires a facts-and-circumstances analysis.   The crucial facts include (1) whether the link is “ongoing”, meaning that the link is continuously available for visitors to the site, (2) the link  is available whether or not in contains favorable material about the firm, and (3) the linked site can be updated and is controlled by the independent third-party.  If the firm has any influence or control over the third-party site, this is considered “entanglement” and the firm becomes responsible for the linked site’s content.   Firms should also review section II.B.2 of the Commission Guidance on the Use of Company Web Sites (August 2008) and Section II.B.1, beginning on page 31 of the Use of Electronic Media (April 2000) for a better understanding adoption and entanglement.

  • Native Advertising – “Native advertising” is material in an online publication that is paid for by an advertiser, and looks like the other content on the webpage. Basically the material mimics editorial content but is promotional.  If a firm using native advertising, the ad must conspicuously disclose the firm’s name, any relationship between the firm and any other entity or individual named in the ad, and identify the products and/or services included in the ad that are offered by the firm.  Such ads must be fair, balanced, and not misleading.  If a firm has arranged or paid for the production or distribution of any communication, entanglement exists and the communication becomes subject to Rule 2210.
  • Testimonials and Endorsements – FINRA reminds firms that are also registered under the Investment Advisers Act of 1940 that SEC Rule generally prohibits them from publishing, circulating, or distributing any advertisement which includes or refers to any testimonial regarding its services. For stand-alone broker-dealer firms, FINRA does not consider unsolicited third-party opinions or comments posted on a social network to be communications of the firm; therefore, such opinions or comments are not subject to any requirement set forth in Rule 2210. However, if the firm or a registered representative likes or shares the unsolicited third-party opinion or comment, “adoption” would exist, subjecting the comment to Rule 2210, including the requirements related to testimonials.
  • Correction of Third-party Content – So long as adoption and entanglement do not exist, firms are permitted to contact an unaffiliated third-party publisher to correct factual information related to the directory listing created by the publisher without invoking Rule 2210.
  • BrokerCheck -The notice clarifies that FINRA Rule 2210(d)(8) requires a firm to include a readily apparent reference and hyperlink to BrokerCheck, only applies to a firm’s website. The Rule does not apply to communications appearing on third-party websites, firm emails, text messages, or applications created by the firm.