Mind your social-media compliance programs: SEC

Risk alert follows adviser exam findings

Jan 5, 2012 @ 3:12 pm

By Dan Jamieson

Investment advisers should examine the effectiveness of social-media compliance programs, the SEC said yesterday in a risk alert.

The alert was based on findings from recent SEC adviser examinations and came as the Securities and Exchange Commission charged an Illinois man with allegedly using social media to offer fictitious securities.

The agency warned advisory firms to periodically evaluate their social-media compliance programs for usage guidelines, content standards, content approval, training and sufficiency of monitoring.

RIA firms often use third-party solicitors and content produced by outside providers, which can complicate their compliance efforts, the alert said.

Firms using social media have to pay particular attention to record-keeping requirements, the alert said, suggesting that advisers retain all records related to social-media communications and have them available for inspection.

“A firm may want to consider the appropriateness of preapproval requirements,” the alert added.

Preapproval has been a thorny issue for broker-dealers.

In some cases, broker-dealers must preapprove postings on a social-media sites.

Last month, the Financial Industry Regulatory Authority Inc. backed away from a proposal that would have required broker-dealers to make post-use filings of most social-media communications with the regulator.

Broker-dealers complained that the filing requirement would be an overwhelming burden.

Adviser use of social media is governed under various rules for different types of communications, said Mary Harris-King, founder of Comprehensive Securities Compliance Solutions Inc., a consultant for B-Ds and registered investment advisers.

Adviser rules “tend to be less stringent than on the BD side,” she said, “but a lot of RIA firms try to follow that [BD] model because they're dually registered or they're afraid that Finra might soon be in their lives” as a self-regulator.

Ms. Harris-King said many advisory firms are working to put social-media polices in place, such as authorizing people to use certain forums and limiting what can be said.

“A majority of the advisers we observed prohibited the posting of recommendations or information on specific products or services on their social-media sites,” the SEC alert said.


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