Actiance handbook FINRA

HANDBOOK

Interpreting FINRA
Regulatory Notices
10-06 and 11-39
and Using Social Media

www.actiance.com

FINRA 10-06 and 11-39 Handbook

Table of Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Regulatory Notice 10-06. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Categories of Electronic Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Regulatory Notice 10-06 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Regulatory Notice 11-39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Regulatory Notice 11-39 Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Key Social Media Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Facebook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

LinkedIn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Twitter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Mapping Facebook Features to 10-06 and 11-39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Mapping LinkedIn Features to 10-06 and 11-39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Mapping Twitter Features to 10-06 and 11-39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Items FINRA Examiners Are On The Lookout For. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

About Actiance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

This white paper is for informational purposes only. Actiance makes no warranties, express or implied, in this document.

Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights under copyright, no part of this document may be reproduced, stored in or
introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), or for any purpose, without the express
written permission of Actiance, Inc. © 2001 - 2011 Actiance, Inc. All rights reserved. Actiance and the Actiance logo are registered trademarks of Actiance, Inc. Actiance Vantage,
Unified Security Gateway, Socialite, and Insight are trademarks of Actiance, Inc. All other trademarks are the property of their respective owners.

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info@actiance.com emea@actiance.com

©2001-2011 Actiance, Inc. A-HB-001-FINRA-10-06-0311

FINRA 10-06 and 11-39 Handbook3

Executive Summary
The Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 10-06 in January 2010 to provide
guidance to broker-dealers regarding the use of social media for advertising. As social media is relatively new in the
financial services industry, firms are still feeling their way around, trying to better understand how they can use social
media effectively. A task force convened early in 2011 to revisit 10-06, resulting in the issuance of Regulatory Notice
11-39 in August 2011 as a corollary to 10-06.

This handbook is intended as a primer on Regulatory Notices 10-06 and 11-39 and how each relates to social
media sites like Facebook, LinkedIn, and Twitter. Additionally, the handbook details how the key features of the
aforementioned sites map to 10-06 and 11-39, what the appropriate course of action should be, and what kinds of
issues FINRA regulators are most interested in when conducting their audits.

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©2001-2011 Actiance, Inc.


Regulatory Notice 10-06
FINRA Regulatory Notice 10-06 is the key piece of guidance on the use of social media for advertising purposes. With
the increasing popularity and use of social networking sites like Facebook, LinkedIn, and Twitter, the industry felt it was
necessary to issue some guidance specific to social media. With the availability of such guidelines, broker-dealers and
registered representatives (RRs) now have more clarity into the permissible uses of social media and the associated
supervisory and recordkeeping requirements.

Definitions
Public Appearance

A “public appearance” is defined as participation in a seminar, forum (including an interactive electronic forum), radio
or television interview, or other public appearance or public speaking activity.

Advertisement

Any material, other than an independently prepared reprint and institutional sales material, that is published, or used in
any electronic or other public media, including any Web site, newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion pictures, or telephone directories (other than
routine listings).

Correspondence

“Correspondence” consists of any written letter or electronic mail message and any market letter distributed by a
member to (1) one or more of its existing retail customers; and (2) fewer than 25 prospective retail customers within any
30-day period. Correspondence need not be approved by a registered principal prior to use, unless such correspondence
is distributed to 25 or more existing retail customers within any 30-day period and makes any financial or investment
recommendation or otherwise promotes a product or service of the member.

Sales Literature

Any written or electronic communication, other than an advertisement, independently prepared reprint, institutional
sales material and correspondence, that is generally distributed or made generally available to customers or the public,
including circulars, research reports, performance reports or summaries, form letters, telemarketing scripts, seminar
texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or
published article, and press releases concerning a member’s products or services.

Categories of Electronic Communications
Static Content

Static content is generally accessible to all visitors and usually remains posted until it is removed by the firm or
individual who established the account. Examples of static content include profile, background, or wall information.
A registered principal of the firm must approve all static content, including Sales Literature and Advertisements, on a
page before it is posted or before the page is edited.

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Interactive Electronic Forum

Interactive content (e.g., Correspondence up to 25 customers and Public Appearances) is considered non-static,
real-time communications and does not require approval by a registered principal prior to use. However, firms still must
supervise these communications. Examples of interactive content include posts on Facebook and Twitter and status
updates on LinkedIn.

Regulatory Notice 10-06 Provisions
• Publicly available websites, banner advertisements, and bulletin boards are considered advertisements. Static
(non-interactive) content on social media sites and blogs are also deemed to be “advertisements.”

• An email or instant message sent to 25 or more prospective retail customers is considered “sales literature.”

• An email or instant message is considered “correspondence” if it is sent to (1) a single customer (prospective or
existing); and (2) less than 25 prospective retail customers within a 30-day period.

• Password-protected websites are considered “sales literature.”

• Real-time interactive or non-static electronic forums, including extemporaneous chat room, social networking, and
blog comments are considered “public appearances.”

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Regulatory Notice 11-39
In this notice, FINRA provides further guidance for firms on applying rules governing communications with the public when
using social media. In short, firms are reminded that existing rules for recordkeeping, suitability, supervision and content
requirements all apply to social media. Additionally, FINRA clarified the following points:

• The content of the communication is determinative, not the communication channel.

• A firm is subject to the “adoption” and “entanglement” theories regarding third-party posts.

• Business communications over personal devices must be retained, retrievable and supervised.

Regulatory Notice 11-39 Provisions
Recordkeeping

Under Securities Exchange Act Rule 17a-4, firms must retain retrievable records of business-related communications
made through social media, regardless of the type of device or technology, or whether they were made by firm-issued or
personal devices. In order to retain all business-related communications, firms may not use communications devices that
automatically delete information. FINRA also states that firms must develop policies and train associated persons on the
differences between business and non-business communications. As further clarification to 10-06, both static and
interactive content are subject to recordkeeping rules.

Supervision

Under NASD Rule 3010, firms must supervise registered persons. To this end, a registered principal must review a social
media site in the form that it will be launched. Reiterating 10-06, unscripted participation in an electronic form is considered
a “public appearance” and, therefore, does not require prior approval by a registered principal of the firm. However, it must
be supervised to ensure that communications do not violate FINRA or SEC rules, including the content requirements of NASD
Rule 2210. However, should interactive content become static, it is considered an ‘’advertisement” and, as such, requires
pre-approval by a registered principal of the firm.

Third Party Posts, Links, and Sites

An associated person may respond to communications on a social media site as long as the response does not violate a
firm’s policies. Firms may not establish third-party links to any site that is known to have false or misleading content. A firm
is responsible under NASD Rule 2210 for the content on a third-party site if the firm has either become “entangled” in the
development of the content or “adopted” the content through implicit or explicit endorsement.

Data Feeds

Firms are responsible for third-party data feeds and must review them for accuracy and correct any erroneous data.

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Key Social Media Sites

Facebook
Facebook is the largest social network in the world with over 800 million members. It enables members to create
profiles, upload photos, join groups, and set up “fan” pages to better interact with customers, prospects, and fans. It
aims to make the world “more open and connected.”

LinkedIn
LinkedIn is a social networking site focused on business professionals. It numbers over 120 million members with
representation in over 200 countries. Members use the site to exchange information, ideas, and opportunities. They
build up a network of “connections” by joining groups and inviting others to join their network.

Twitter
Twitter is a social media site that offers a microblogging service (140 characters or less). It’s been nicknamed the “SMS
of the Internet” and is essentially a real-time information network that connects you to the latest information on topics
of interest to you. You can choose to “follow” or be followed by others. Additionally, your messages can be private, and
you retain control over who follows you.

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Mapping Facebook Features to 10-06 and 11-39
Feature FINRA Definition FINRA Category Recommendation Relevant Controls
Archive, Post-review,
Basic information Advertisement Static Pre-approve
Block/allow
Profile picture Advertisement Static Pre-approve
Block/allow
Update status Archive, Post-review,
Public Appearance Interactive Supervise
(Wall News Feed) Moderate*
Upload photo
Public Appearance Interactive Supervise Archive, Post-review
(Wall News Feed)
Attach link (Wall News Feed) Public Appearance Interactive Supervise Archive, Post-review
Upload video
(Wall News Feed)
Write a comment Public Appearance Interactive Supervise
Moderate*
Chat Correspondence Interactive Supervise Archive, Post-review
Compose message Correspondence Interactive Supervise Archive, Post-review
Post new topic to group Public Appearance Interactive Supervise Archive, Post-review
Create group Public Appearance Interactive Supervise Archive, Post-review
Chat with group Public Appearance Interactive Supervise Archive, Post-review
Post reply to group topic Public Appearance Interactive Supervise Archive, Post-review
Join a group Public Appearance Interactive Supervise Archive, Post-review
Like Advertisement or Public Archive, Post-review,
Static or Interactive Block or Supervise
(can be considered an endorsement) Appearance Block/allow

*Note: ”Moderate” in this context means “pre-review”

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Mapping LinkedIn Features to 10-06 and 11-39
Basic information Advertisement Static Pre-approve
Block/allow
Profile picture Advertisement Static Pre-approve
Block/allow
Share network update Public Appearance Interactive Supervise
Moderate*
Comment to network update Public Appearance Interactive Supervise Archive, Post-review
Compose message Correspondence Interactive Supervise Archive, Post-review
Write recommendation Advertisement Static Block
Block/allow
Join group Public Appearance Interactive Supervise N/A
Create a group Public Appearance Interactive Supervise N/A
Start a discussion Public Appearance Interactive Supervise Archive, Post-review
Like a group discussion Advertisement or Public Archive, Post-review,
comment Appearance Block/allow
Post a comment to group
discussion
Ask a question Public Appearance Interactive Supervise Archive, Post-review
Answer a question Public Appearance Interactive Supervise Archive, Post-review


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Mapping Twitter Features to 10-06 and 11-39
Basic information Advertisement Static Pre-approve Archive, Post-review
Profile picture Advertisement Static Pre-approve Archive, Post-review
Tweet Public Appearance Interactive Supervise
Moderate*
Retweet Advertisement or Public Archive, Post-review,
(can be considered an endorsement) Appearance Block/allow
Reply Public Appearance Interactive Supervise Archive, Post-review
Advertisement or Public Archive, Post-review,
Favorite Static or Interactive Block or Supervise
Appearance Block/allow
Follow N/A Interactive Supervise N/A
Send a message Correspondence Interactive Supervise Archive, Post-review
Advertisement or Public Archive, Post-review,
Create a list Static or Interactive Block or Supervise
Appearance Block/allow


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Items FINRA Examiners Are On The Lookout For

Policies
FINRA examiners typically are interested in what kinds of policies financial services firms have adopted to address
social media. Among some of the specific policies regulators are keen to gather information includes the following:

• General use of social media within the firm
• Any communications posted to social media sites
• Any prospective communications posted to social media sites
• Any ongoing monitoring or review processes related to communications posted to social media sites
• Third-party communications posted to a social media site
• Approval processes for prospective communications posted by third parties
• Any ongoing monitoring or review processes for communications posted by third parties
• Use of social media for non-business purposes
• Training and education of personnel on social media usage, whether for personal or business purposes
• Disciplinary action for social media use
• Record retention of social media, whether for personal or business purposes

Procedures
Regulators are also interested in learning about the procedures firms have in place to ensure that the latter remain in
compliance with FINRA guidelines. Generally speaking, procedures usually mirror the policies themselves, i.e., firms
will develop procedures to be consistent with the policies they’ve established (see preceding section). Thus, regulators
are interested in viewing documentation pertaining to procedures for the following:

• General use of social media within the firm
• Any communications posted to social media sites
• Any prospective communications posted to social media sites
• Any ongoing monitoring or review processes related to communications posted to social media sites
• Third-party communications posted to a social media site
• Approval processes for prospective communications posted by third parties
• Any ongoing monitoring or review processes for communications posted by third parties
• Use of social media for non-business purposes
• Training and education of personnel on social media usage, whether for personal or business purposes
• Disciplinary action for social media use
• Record retention of social media, whether for personalz or business purposes

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Recordkeeping
Regulators also are keen to remind members that firms which communicate through social media sites must still adhere
to recordkeeping rules.

“Each member shall make and preserve books, accounts, records, memoranda, and correspondence in conformity
with all applicable laws, rules, regulations and statements of policy promulgated thereunder and with the Rules of this
Association and as prescribed by SEC Rule 17a-3. The record keeping format, medium, and retention period shall
comply with Rule 17a-4 under the Securities Exchange Act of 1934.”

Compliance considerations

• Social networking sites, such as Facebook, offer no native archiving functionality, making it difficult to comply
with Regulatory Notice 07-59 that spells out the requirements for review “by a supervisor of employees’ incoming,
outgoing and internal electronic communications.”

• Native archiving functionality offered by unified communications and other real-time communications tools is
rarely able to provide a granular breakdown of conversations by persons (including buddynames), key phrases, and
timeframes, which are essential for compliance and eDiscovery requirements.

• This is further complicated by the slew of modalities used in conversations – from IM to BlackBerry.

Compliance recommendations

Enterprises should deploy a central archiving system that enables easy review of posted messages and detailed analysis
of electronic conversations, including file downloads both internally and externally, complete with an audit trail of the
auditor reviewing the information. In addition, the information should include who joined a conversation, when they
joined, when they left, any disclaimers shown (at the beginning of an IM conversation, for instance), and call detail
records (CDRs) for voice calls, group meeting sessions, etc.

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About Actiance, Inc.

Actiance enables the safe and productive use of unified communications, collaboration, and Web 2.0,
including blogs and social networking sites. Formerly FaceTime Communications, Actiance’s award-winning platforms
are used by 9 of the top 10 US banks and more than 1,600 organizations globally for the security, management, and
compliance of unified communications, Web 2.0, and social media channels. Actiance supports all leading social networks,
unified communications providers, and IM platforms, including Facebook, LinkedIn, Twitter, AOL, Google, Yahoo!, Skype,
Microsoft, Jive, IBM, and Cisco.

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