Investment Advisers Should Have Compliance Policies and Procedures for the Use of Social Media

June 12, 2013

The use of social media and networking websites is becoming an increasingly common communication and marketing tool. If an investment adviser permits the use of social media and networking websites by its supervised persons, the investment adviser must have in place strong compliance policies and procedures that clearly define acceptable use and address key areas such as supervision and record retention.

In a National Examination Risk Alert (“Risk Alert”) issued by the Office of Compliance Inspections and Examinations of the U.S. Securities and Exchange Commission (“SEC”), the term social media is described as:

 “Social media” is an umbrella term that encompasses various activities that integrate technology, social interaction and content creation. Social media may use many technologies, including, but not limited to, blogs, microblogs, wikis, photos and video sharing, podcasts, social networking, and virtual worlds.

Investment advisers should address social media in their written policies and procedures manual. As indicated in the SEC’s Risk Alert, “Many [investment adviser] firms have policies and procedures within their compliance programs that specifically apply to the use of social media by the [investment adviser] firm and its IARs; however, the [SEC] staff observed variation in the form and substance of the policies and procedures. The staff noted that many firms have multiple overlapping procedures that apply to advertisements, client communications or electronic communications generally, which may or may not specifically include social media use. Such lack of specificity may cause confusion as to what procedures or standards apply to social media use. Many procedures were also not specific as to which types of social networking activity are permitted or prohibited by the [investment adviser] and many did not address the use of social media by solicitors.”

As a general guide, investment advisers should indicate in their written policies and procedures what social media or networking sites it uses and has approved for use for conducting business on behalf of the firm. Additionally, an investment adviser should specify what social media websites are prohibited for use by supervised persons and what possible actions may be taken (i.e. disciplinary action) against those individuals that fail to adhere to the restrictions in place regarding the identified prohibited social media and networking websites. Investment advisers may consider requiring all supervised personnel to acknowledge and sign a social media review-approval form which requires supervised persons to request approval prior to social media use for business purposes (to purchase a sample social media review-approval form, click here). The signed social media review-approval form may then be retained as part of the investment adviser’s books and records.

An investment adviser’s policies and procedures should also identify the designated party or parties responsible for ensuring supervised persons understand and adhere to the policies and procedures regarding social media and networking websites. Additionally, the policies and procedures should identify the frequency with which an investment adviser’s supervised persons are monitored and the frequency for which the written policies and procedures are reviewed for effectiveness. Other areas that an investment adviser should consider addressing in its social media written policies and procedures may include approval of content prior to posting online, training program guidelines, and possible information security risks and how to prevent such threats online.

Investment advisers must also consider their books and records retention requirements under the Investment Advisers Act of 1940 as it pertains to social media use. An investment adviser’s policies and procedures should identify if and how electronic communications will be gathered, retained, and maintained. Investment advisers may consider using a third party to assist with electronic surveillance and electronic messaging and data archiving for social media and networking websites. Records gathered should be kept true and accurate for at least five years from last use and should be easily accessible so that they may be produced during an audit, if requested. If an investment adviser is using a third party service provider to assist with archiving or supervising a social media and networking site used by the investment adviser, the third party should be identified in the investment adviser’s policies and procedures.

For more information concerning social media use for investment advisers, RIA Compliance Consultants is hosting a webinar, “Social Media and Email Compliance for Investment Advisers,” on Thursday, June 20, 2013, at 12:00 CDT. During this webinar, RIA Compliance Consultants will discuss the regulatory compliance requirements related to an investment adviser’s use of social media websites and email. Our consultants will provide guidance regarding record retention requirements and developing policies and procedures related to using social media websites and communicating with your clients via email.  Additionally, we will discuss the need to address the supervision and monitoring of email communication and the personal use of social media websites by investment adviser representatives. To purchase this webinar, click here.

Posted by Bryan Hill
Labels: Compliance Program, Compliance Training, Social Media, Written Policies and Procedures