In the recent “2019 Report on FINRA Examination Findings and Observations,” one of the topics highlighted was the use of digital communications. This can include a wide range of social media, email, text messaging, and various other digital tools. The regulatory requirements pertaining to the usage of digital communications are outlined in Exchange Act Rule 17a-3 and 17a-4 and FINRA Rules 3110(b)(4) and 4510. These rules require procedures pertaining to the usage of these types of communications, as well as the appropriate maintenance of the communications in the form of books and records.
Exam Findings
In the report, FINRA identified areas where firms prohibited the usage of “digital channels for business-related communications with customers.” However, they also observed that some firms did not implement processes to identify or confirm whether members of the staff were in violation of the policy. Some of the various media formats outlined were text messaging, social media platforms, and collaboration applications, such as Facebook, WhatsApp, WeChat, Slack, and HipChat. Another area highlighted was the use of electronic sales seminars in various digital formats that were not authorized for use and were not being monitored or archived by the firm.
Best Practices for Firm Use of Digital Communications
Registered representatives’ use of digital communication tools can be challenging for firms to address and supervise. The FINRA report outlined some best practices for dealing with the supervisory requirements while allowing employees to participate in some of the various communication methods.
It is suggested that firms work closely with various departments within the organization, such as compliance, marketing, and information technology, to identify ways to monitor the use of these communication tools. Firms should consider creating specific policies and procedures that address the various forms of digital communications and the acceptability and requirements for usage. Before any tools are permitted for firm use, firms should secure a process for archiving the data and establish a supervisory process to review the archived data.
It is also important to address the specific digital communications sources that are prohibited. When a specific site or communication method is prohibited, measures should be implemented to block the usage of those digital communication tools and monitor for any possible violations. Another item for consideration is implementing discipline processes for when or if an employee violates the procedures regarding compliant digital communications. This process could employ either a temporary or permanent ban on the usage of the communication method.
Lastly, FINRA recommended that firms provide mandatory training for all employees. Training provides guidance and education for employees regarding the approved and prohibited communication methods for the firm. This education process is beneficial for the staff to gain a better understanding of the compliance requirements of safe and effective use of digital communications.
Conclusion and Additional Resources
Technology and digital communications are constantly changing and evolving. Therefore, it is prudent for firms to stay informed about business-related communication methods used by firm representatives and mitigate any issues as soon as possible.
For more information on business-related digital communications and other key FINRA examination findings, read the full 2019 Report on FINRA Examinations Findings and Observations.