Full disclosure: I am not a lawyer, broker-dealer, regulator for the SEC, etc. Nor do I play one on this blog. As with any other legal or regulatory questions, don't treat this as legal advice, talk to your lawyer. 

Earlier this month FINRA, the Financial Industry Regulatory Authority, published Regulatory Notice 10-06, Social Media Web Sites: Guidance on Blogs and Social Networking Web sites. This is of particular interest for a couple of reasons. First, there are still a lot of people that believe that social networking sites either aren't used for business, or shouldn't be used for business. Now, this is nothing new - we saw similar positions and assertions around instant messaging, and before that around email, and probably the telephone before that. The publication of this note seems to contradict both of those ideas - clearly the question has arisen as to how financial services firms can use these tools for business. 

The Notice takes the position that some communications, such as many blogs, are static, similar to websites and to printed advertisements and solicitations. As such, they need to be approved by registered principals of the firm, just as with other static content. Other communications, such as Twitter, are more interactive and unscripted, and do not need to be approved but do need to be monitoried, again just as with other interactive content. And some communications are both and the determination is made by whether the particular communication is more static or more interactive. In other words, FINRA is taking the eminently sensible position that it is the content that determines how to manage a particular communication, not the fact that it is "social networking" or a particular type of social networking tool. 

The Notice also establishes that these tools have to be managed under all the existing guidance with regards to recordkeeping - indeed, that's the very first question:

"Q1: Are firms required to retain records of communications related to the broker-dealer’s business that are made through social media sites?

A1: Yes. Every firm that intends to communicate, or permit its associated persons to communicate, through social media sites must first ensure that it can retain records of those communications as required by Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and NASD Rule 3110. SEC and FINRA rules require that for record retention purposes, the content of the communication is determinative and a broker-dealermust retain those electronic communications that relate to its “business as such.” "

Finally, the Notice "only addresses the use by a firm or its personnel of social media sites for business purposes. The Notice does not purport to address the use by individuals of social media sites for purely personal reasons." It does note later (Q7), however, that use of social media sites for business purposes must be supervised, users must be trained on appropriate usage within the broker-dealer context, etc. It specifically adds that "firms must have a general policy prohibiting any associated person from engaging in business communications in a social media site that is not subject to a firm's supervision." 

In the comments, Doug Cornelius rightly notes that the issue is not the guidance per se, but the difficulty of compliance in particular with the recordkeeping requirements under SEC 17a-3 and 17a-4. The Notice references this as well; there are some ways to do this today but most of them are manual. That was and is the same issue with instant messaging, though, and the vendor community has come up with a number of products to address that in the form of enterprise instant messaging applications and in gateways that can archive commercial services. These are not widely available today for e.g. Twitter and Facebook but it is reasonable to expect them sooner than later, particularly give the open nature of the APIs for many of these tools. 

The entire 10-page Notice is available here: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p120779.pdf (PDF)

Hat tip to Mike Gotta at Collaborative Thinking for the original post.