From the August 01, 2011 issue of Futures Magazine • Subscribe!

Social media considerations for financial firms

Because many parts of the NFA rules are drafted broadly, the NFA has recently provided specific guidance on the use of social media and implementing related compliance policies. In general the guidance provides more color on how the NFA rules relate to certain social media uses. The guidance also reaffirms the need for firms to implement social media compliance policies and update periodically as necessary.

NFA examinations

Creating, implementing and periodically updating social media compliance policies and procedures will help significantly when and if a firm is subject to an examination by the NFA. An NFA exam involves a back-and-forth information and document request process with the NFA prior to, during and after the actual in-office review process. During an examination, the NFA will review everything — all firm and employee social media accounts, tweets, re-tweets, links, profiles, etc. The NFA always will include a request to see the firm’s procedures manual and that manual will need to include the promotional material review procedures among other items.

Even if a firm does not utilize social media, the NFA will be reviewing all aspects of the firm’s website and other electronic communications, such as emails and instant messages. If a firm does utilize social media, the review will focus on all the ways the firm uses the medium. It is important that a firm is able to support all statements made on social media sites and the internet in general. The NFA will ask for documentation supporting any statements made by the firm or employee. Auditors also will review the LinkedIn accounts of all the employees of the firm, including the principals. If there is information that is inaccurate or out of date, the NFA will ask to have the information updated.

Firms should remember that social media really cannot be divorced from promotional material. Periodically the NFA hosts various compliance seminars where they discuss some of the common deficiencies with respect to promotional material. One recent seminar noted that common deficiencies include: Opinions not clearly labeled as opinions; past trading performance not being correctly reported (and with appropriate disclaimers) and improper discussion of the firm on third-party websites.

The way groups use social media to promote their businesses constantly is evolving as the number and variety of sites increase. "What’s the buzz" (side bar) describes the most popular sites and how they are used.

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