S(M)ocialware, E(?)-Learning, Report C/Enter, Proposed Rule 20Fuzzy

Just commenting on some miscellaneous topics. Variety is the spice of life.

S(M)ocialware: The company "Socialware" (which recently partnered with Smarsh) offers compliance tools for social media. If you are brave enough to allow your Reps to use tools like Linked In, Facebook and Twitter to expand their business, then you should check out this vendor's products. As you know, archiving and monitoring those types of communications is required, and, the fact that I am an ITiot, I can't fathom managing that compliance without some sophisticated help. I see on their website that they will be at the May FINRA conference in Baltimore. Check'em out when you're there. (PS: Here's a link to a free, interactive webcast on the topic of advisers using social media sites as business communication tools... June 2 webcast).

E?-Learning: Let me commence by stating unequivocally that the people who work in FINRA's E-Learning department are wonderful---> helpful, dedicated, pleasant. I appreciate them with my entire being. [pause] BUT: oh-em-gee. Having just gone through the process of setting up a firm's reps for participation in E-Learning in order to meet C/E firm element assignments, I have to surmise that the regulatory body formerly known as NASD did not do proper due diligence when choosing a programmer for their newly (?)improved FINRA Education online system. From start to finish, the system is crazily inefficient and cumbersome. To choose "Mandatory" for an assigned course, you can't just type the word, or choose it from a drop down menu--instead, you have to click/search/type/click/etc. before the magic word "Mandatory" appears in the box. Adding courses to a Rep's training plan is equally puzzle-like...instead of a list or drop down menu to choose from, you have to search for specific course names. I have more nit-picks but this is getting boring...take it from me, give yourself mucho time to set up Reps' training plans if you intend to use this system. And don't blame our friends at E-Learning: they really are great.

Report C/Enter:  FINRA now offers a 'continuing education regulatory element report' on Report Center. It is a quarterly report that shows how your firm's Reps perform on Reg. Element testing, compared to industry averages. You may want to incorporate this report into your C/E needs analysis process. Check it out on Report Center in Firm Gateway (you won't see a report listed if there were no Reps who took Reg. Element training in the prior quarter).

Proposed Rule 20Fuzzy: --'er, I mean, 2040. See Notice 09-69 for a description of the proposed rule, which concerns payments to unregistered persons. What everyone is always hoping for is crisp rule language on paying people like finders. For now, it's fuzzy, and according to the Notice and thoughtful comment letters, it will remain so. I suggest you read a few of the comment letters, like the one from NASAA and the one from Morgan, Lewis, to understand how this Rule, as proposed, will provide no clarity on this issue. (Wanna pay an unregistered finder? Hire a legal team to prepare an opinion of counsel that, by relying on specific regulatory guidance, no-action letters and interpretations [not rules, mind you!], justifies how your payment will not subject the recipient to SEC registration. ...G'luck with that.)

Gee, I wish I weren't so critical, cynical, analytical and generally bitch-ical. But seriously, can you blame me?? Enjoy your sunshine and your weekend--may it be varied and spicy.

Social Networking Compliance: A Resource

I'd post this on my Wall, but none of my FB friends would understand it!

Got a follow-up email to my last post on this subject from a reader--a firm in Austin, Texas that may have just the tool you need to keep up with FINRA's demands. Check out Socialware's "Risk Manager" product. On the surface, Socialware seems to have developed something useful and, importantly, something designed specifically to meet regulatory guidance.

To allow Reps to use social networking sites as tools to build business might be the best idea of the 21st century--but it carries with it a commitment of both money and time (even an affordable automated surveillance program will require concerted attention by a Principal). The way you balance the need for online networking and the need to budget time and money will determine whether you take this leap.

Some due diligence considerations: Socialware's product is brand new with a limited number of users; the loyal following may consist more of non-FINRA-regulated firms (that is, IA's and others) and therefore may not have been tested yet by examiners; and I'm told the per user charge is small but I don't know about set-up/installation/training charges.

I think it's worth checking out. Tell'em I sent you, K? And please report back with feedback. I'd love to think this is the answer BD's are looking for.

Social Networking Sites: Word to the Wise

FINRA has put out guidance on the topic of social networking sites (SNS). The explosion of electronic communications in many forms has made it difficult for BD’s to know how to follow SEC books & records rules. It used to be straightforward, but with tools like Facebook & Twitter, it’s tough to decide what constitutes categories like advertising, public appearance, correspondence and recommendations. I suggest you read Notice 10-06 (it’s not long!) so you are aware of FINRA’s concerns.

What FINRA wants is this: if your Reps or the Firm itself use SNS’s for business purposes, then you have to be able to supervise all postings, whether they are ‘static’ (like profiles or wall posts) or ‘interactive’ (like chats or interactive posts with third parties), and you have to be able to store all that content under SEC books and records rules (17a-3/a-4). Pre-approval of anything considered an ‘advertisement’ (the static content) is required; pre-approval is not required for interactive content, but all other requirements apply to that material.

Sound like a big job? It is! Word has it the bigger e-mail storage vendors are working on products that firms can use to meet these requirements (automatically saving the online content and providing an automated review tool for monitoring it), but I can imagine those products will not be cheap. And it’s harder to imagine small firms being able to adequately meet the supervision/r-k requirements on their own.

So, if you are going to allow Reps to participate in SNS’s, you HAVE to implement procedures to meet FINRA’s guidance. And you HAVE to follow those procedures.

If you would rather avoid this administrative challenge & expense (and the related liability of allowing the activity), you will have to be clear about your expectations of firm personnel. Make sure your procedures include a prohibition of this activity; it would also be smart to send an e-mail reminder to everyone at your firm. I suggest:

Our firm strictly prohibits you from engaging in business communications in a social media site (such as Twitter, Facebook and Linked-In, among others). Your participation in such sites must be for purely personal reasons. You may not present yourself on such sites as a representative or agent of the firm: to do so is considered “advertising” and requires pre-approval by our compliance staff. Likewise, on such sites you may not recommend securities or engage in discussions about securities or the firm’s business. Lastly, you may not: link to third party material relating to securities; assist third party site participants in preparing such material; or comment on/endorse third party posts on such material. Our firm may from time to time request access to your social networking sites in order to spot check them for compliance with this prohibition. Perceived violations will be met with disciplinary action.

No matter how you word it, the message should be clear--personnel may not use these sites for business purposes: to do so immediately puts your firm at risk.