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The risky business of compliance

New archiving solutions take the headaches out meeting SEC link capture regulations

Dec 31, 2014 @ 10:44 am

By Craig Brauff

As social media quickly rises above the fray as an effective marketing vehicle for RIAs, the risks of noncompliance also have become greater. Using social media sites such as LinkedIn, Twitter and Facebook to share articles via hyperlinks is nearly ubiquitous. But RIAs must be careful doing so, given the liability that a hyperlink represents. Many financial services companies haven't been monitoring these third-party links because they don't have the capability. And of those that are monitoring links, some are physically printing and filing the content of each and every link to try to adhere to compliance regulations — a laborious process that is dangerous to a business.

(More: Survey shows social media use growing among advisers)

“Link compliance is a huge issue today so financial firms must have procedures in place to adhere to the most stringent broker-dealer rules,” said John Male, director of financial planning at G&G Planning Concepts Inc., an independent financial planning firm in New York. “A person might be tweeting 10 to 15 times per day, and the process of printing links would not only be terribly erroneous, it would be a full-time job in itself.”

RIAs must comply with tighter regulations

Due to regulations established by the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc., broker-dealers and registered investment advisers are responsible for making sure that there is no false or misleading information on the links they provide. In the eyes of Finra and the SEC, you are tacitly endorsing any articles or links you share. If the content from that link isn't captured at the time that it is shared, then it could be taken down, changed or the content deemed inappropriate by Finra. There is liability if you are not reviewing and saving the content that a hyperlink represents.

“Finra gave the RIA community time to adapt to new rules of the road,” Mr. Male said. “But now that social media has become omnipresent, Finra has become better at clarifying the rules, making it much easier for RIAs to comply. Because of this, Finra will be more aggressive and take a harder stance with people who do not comply in the future.”

(More: Big data becomes a sharp weapon for regulators)

This brave new world, as we know it, now demands the digital capture of all electronic communication system data (using indelible media for storage, no less). SEC rules require companies to have documented retention policies. They also ask companies to store data properly and index all records so they are readily accessible. Furthermore, offsite electronic file storage needs to be in strict compliance with D3P (third-party independent download providers).

Burdensome as it is, regulatory compliance for data retention, indexing and accessibility for firms who traffic in trading or brokering financial securities including stocks, bonds and futures is now reaching deep into social media. And that means D3P plays an ever-more crucial role in assuring total compliance, especially now that financial firms are required to capture embedded hyperlink addresses, as outlined by the Finra Regulatory Notice 11-39, to monitor social media sites for hyperlinks to third-party sites for any false or misleading content. And enforcement is well under way.

The solution: Embedded hyperlink capture

Thankfully, compliance solutions are now available to address this issue. New “embedded-link-capture” services are available to address Finra and SEC regulations requiring the capture of third-party links. With an embedded-link-capture solution, financial services firms remain compliant while giving financial advisers the confidence to use social media for business growth.

Embedded-hyperlink-capture services enable financial services companies the ability to capture third-party links, including multiple links in a single post, across all social media channels (e.g., Twitter, Facebook, and LinkedIn, etc.). This service also archives the content of third-party links originated in social media posts, along with an image of the hyperlink location and text, including any documents, pictures or video represented by the URL or hyperlink.

Once the content of the linked webpage is captured, the image and text can be monitored and reported based on the firm's compliance policy. Firms can access and view all hyperlink webpages, enabling them to reliably and efficiently survey linked webpages and flag potential issues.

Compliance must-have

Social media has quickly become a valuable tool for RIAs. Every year, more people sign up to use social sites like Twitter, LinkedIn and Facebook, and users are becoming more and more active.

Social media has increased G&G Planning Concept's presence. By using Twitter, it has become easier for G&G's social media expert to communicate with clients and attract new ones.

“Having an embedded-link-capture service in place is a critical first step for us in ensuring our compliance with Finra and SEC regulations,” Mr. Male said.

Before diving into social media, RIAs should ask their technology providers about automated-embedded-link capture solutions. It's a must-have.

Craig Brauff is chief executive of Erado, an electronic communication compliance provider.

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