Recognizing the rapid growth of the use of social media in the securities industry, the SEC recently released a Risk Alert on the use of social media by investment advisers highlighting concerns that may arise from use of social media by advisers and their associated persons and offering guidance to firms in complying with the antifraud, compliance, and recordkeeping provisions of the federal securities laws as they relate to social media. Social media policies and procedures should be adopted and regularly revisited to ensure they remain effective in the face of rapidly changing technology. Implementing detailed usage guidelines and content limitations as well appropriate procedures to monitor the use of social media are some of the suggestions offered by the SEC in the alert.
State regulators have also started to take note of the value of social media and the potential for harm from regulatory violations due to its ability to reach a much wider audience. The Massachusetts Securities Division recently issued a Report on the Use of Social Media by Investment Advisers indicating that the use of social media by investment professionals has dramatically increased in recent years. The Report was prepared in response to a survey of all Massachusetts-registered investment advisers to determine the scope of social media usage and what compliance procedures were in place related to social media. Notably, while the results of the survey indicate that a significant percentage of advisers already use social media as part of their business, the Report noted that that many advisers have not implemented sufficient recordkeeping systems and/or supervisory and compliance procedures to monitor the use of the web sites, blogs and other media outlets.
Based on these findings, the Division issued a Notice providing guidance concerning how firms can use social media to promote their business while remaining compliant with regulatory requirements. The Notice states that information on social media websites that contain business-related content or solicitations for advisory services is generally considered advertising and is subject to the same regulatory requirements as other forms of advertising, including recordkeeping requirements and the restrictions on the use of testimonials and misleading statements. Accordingly, firms should engage in proper record-keeping and monitoring of the use of social media. As referenced in the Notice, there are various technology providers that offer advisers assistance in addressing recordkeeping requirements related to social media content. Particular attention should be paid to any performance information or past specific recommendations communicated through social media, as this may not be an appropriate medium for disseminating such information.
Although no new laws or regulations have been issued relating to the use of social media, the guidance from federal and state regulators is extremely helpful in explaining the application of social media to existing rules and regulations. Firms should carefully review their policies and procedures governing social media in light of the recent regulatory guidance and make enhancements to compliance programs accordingly. For additional information, please contact Zac Rosenberg, Compliance Consultant by email at firstname.lastname@example.org or by phone at (619) 278-0020.