Communications with the Public
Regulatory Obligations and Related Considerations
FINRA Rule 2210 (Communications with the Public) categorizes all communications into three categories—correspondence, retail communications or institutional communications—and sets principles-based content standards that are designed to apply to ongoing developments in communications technology and practices. The rule also includes standards for firms’ approval, review and recordkeeping procedures, as well as requirements to file certain communications with FINRA. FINRA Rule 2210 requires, among other things, that all communications be based on principles of fair dealing and good faith, be fair and balanced, provide a sound basis for evaluating the facts “in regard to any particular security or type of security, industry, or service” and include all “material fact[s] or qualification[s]” necessary to ensure such communications are not misleading. In addition, the rule prohibits false, misleading, promissory or exaggerated statements or claims, and projections of performance.
- General Standards
- Do your firm’s communications include material information necessary to make them fair, balanced and not misleading? For example, if a communication promotes the benefits of a high-risk or illiquid security, does it explain the associated risks?
- Do your firm’s communications balance specific claims of investment benefits from a securities product or service (especially complex products) with the key risks specific to that product or service?
- Do your firm’s communications contain false, misleading or promissory statements or claims?
- Do your firm’s communications contain predictions or projections of investment performance to investors that are generally prohibited by FINRA Rule 2210(d)(1)(F)?
- Digital Communication Channels
- Does your firm’s digital communication policy address all permitted and prohibited digital communication channels and features available to your customers and associated persons?
- Does your firm review for red flags that may indicate a registered representative is communicating through unapproved communication channels, and does your firm follow up on such red flags? For example, red flags might include email chains that copy unapproved representative email addresses, references in emails to communications that occurred outside approved firm channels, or customer complaints mentioning such communications.
- How does your firm supervise and maintain books and records in accordance with SEC and FINRA rules for all approved digital communications?
- If your firm offers an app to customers that includes an interactive element, does the information provided to customers constitute a “recommendation” that would be covered by Reg BI, which requires a broker-dealer to act in a retail customer’s “best interest,” or suitability obligations under FINRA Rule 2360 (Options)? If so, how does your firm comply with these obligations?
- If your firm’s app platform design includes “game-like” aspects that are intended to influence customers to engage in certain trading or other activities, how does your firm address and disclose the associated potential risks to your customers?
- Do your firm’s communications—regardless of the platform through which they are made—comply with the content standards set forth in FINRA Rule 2210?
- Digital Asset Communications – If your firm or an affiliate engages in digital asset activities:
- Does your firm provide a fair and balanced presentation in marketing materials and retail communications, including addressing risks presented by digital asset investments, and not misrepresenting the extent to which digital assets are regulated by FINRA or the federal securities laws or eligible for protections thereunder, such as Securities Investor Protection Corporation (SIPC) coverage?
- Do your firm’s communications misleadingly imply that digital asset services offered through an affiliated entity are offered through and under the supervision, clearance and custody of a registered broker-dealer?
- Cash Management Accounts Communications – If your firm offers Cash Management Accounts, does it:
- Clearly communicate the terms of the Cash Management Accounts?
- Disclose that the Cash Management Accounts’ deposits are obligations of the destination bank, and not cash balances held by your firm?
- Confirm that its communications do not state or imply that:
- brokerage accounts are similar to, or the same, as bank “checking and savings accounts” or other accounts insured by the Federal Deposit Insurance Corporation (FDIC); and
- FDIC insurance coverage applies to funds when held at or by a registered broker-dealer?
- Review whether communications fairly explain the:
- nature and structure of the program;
- relationship of the brokerage accounts to any partner banks in the Cash Management Accounts;
- amount of time it may take for customer funds to reach the bank accounts; and
- risks of participating in such programs?
Exam Findings and Effective Practices
- Deficient Digital Assets Communications – Failing to balance promotional statements with prominent risk disclosures; including false, misleading or unwarranted statements; using the same firm names, websites and other materials for broker-dealers and their digital asset affiliates; not identifying the (non-broker-dealer) entities responsible for digital asset offerings; and implying that digital assets were offered by the broker-dealer.
- Misrepresentations in Cash Management Accounts Communications – Misrepresenting material information relating to Cash Management Accounts in online and other communications (in some cases, despite written and verbal warnings from FINRA’s Advertising Regulation Department), including, for example, the firms’ status as broker-dealers rather than banks; the status of Cash Management Accounts as “checking and savings accounts;” the amount of FDIC insurance coverage for the deposits; the amount of time it may take for customer funds to reach the bank accounts; terms of the Cash Management Accounts; and risks of participating in such programs.
- Insufficient Supervision and Recordkeeping for Digital Communication – Not maintaining policies and procedures to reasonably identify and respond to red flags—such as customer complaints, representatives’ email, OBA reviews or advertising reviews—that registered representatives used impermissible business-related digital communications methods, including texting, messaging, social media, collaboration apps or “electronic sales seminars” in chatrooms.
- No WSPs and Controls for Communication That Use Non-Member or OBA Names (so-called “Doing Business As” or “DBA” Names) – Not maintaining WSPs to identify the broker-dealer clearly and prominently as the entity through which securities were offered in firm communications, such as websites, social media posts, seminars or emails that promote or discuss the broker-dealer’s securities business and identify a non-member entity, such as a representative’s OBA; and not including a “readily apparent reference” and hyperlink to FINRA’s BrokerCheck in such communications.
Emerging Digital Communication RisksNew Digital Platforms With Interactive and “Game-Like” Features
2020 witnessed a surge in new retail investors entering the markets via online brokers, as well as an increase in certain types of trading, including options. Some online broker-dealers’ apps—as well as those offered by other financial services and consumer-oriented businesses—include interactive and “game-like” features, as well as related forms of advertising and marketing. Such features affect many aspects of how firms interact and communicate with customers, from initial advertisements through the opening of accounts, recommendations and the presentation of different investment choices.
While such features may improve customers’ access to firm systems and investment products, they may also result in increased risks to customers if not designed with the appropriate compliance considerations in mind. Firms must evaluate these features to determine whether they meet regulatory obligations to:
- comply with any Reg BI and Form CRS requirements if any communications constitute a “recommendation” that requires a broker-dealer to act in a retail customer’s “best interest”;
- make disclosures relating to risks to customers, fees, costs, conflicts of interest, and required standards of conduct associated with the firm’s relationships and services;
- prohibit the use of false, exaggerated or misleading statements or claims in any communications and ensure all firm communications are fair and balanced and do not omit material information concerning products or services;
- comply with account opening requirements that require firms to gather information about customers (such as FINRA Rule 4512 (Customer Account Information)) and approve certain types of accounts, including options accounts (such as FINRA Rule 2360(b)(16) (Diligence in Opening Accounts) and other supervisory controls relating to options, such as surveilling for options‑related customer complaints, excessive commissions and fees, and large amounts of losses);
- develop a comprehensive supervisory system for such communication methods, including surveilling for red flags of potential violative behavior and maintaining books and records of all communications related to the firm’s business as such; and
- address compliance with FINRA communications rules, such as FINRA Rules 2210 (Communications with the Public); 2211 (Communications with the Public About Variable Life Insurance and Variable Annuities); 2212 (Use of Investment Company Rankings in Retail Communications); 2213 (Requirements for the Use of Bond Mutual Fund Volatility Ratings); 2214 (Requirements for Use of Investment Analysis Tools); 2215 (Communications with the Public Regarding Securities Futures); 2216 (Communications with the Public Regarding Collateralized Mortgage Obligations) and 2220 (Options Communications).
- Comprehensive Procedures for Digital Communications – Maintaining and implementing procedures for firm digital communication channel policies, including:
- Monitoring of New Tools and Features – Marketing, compliance and information technology departments working closely together, as well as with third-party vendors, to monitor new communication channels, apps and features available to their associated persons and customers.
- Defining and Enforcing What is Permissible and Prohibited – Clearly defining permissible and prohibited digital communication channels, and blocking prohibited channels, tools or features, including those that prevent firms from complying with their recordkeeping requirements.
- Supervision – Implementing supervisory review procedures tailored to each digital channel, tool and feature.
- Video Content Protocols – Developing WSPs and controls for live-streamed public appearances, scripted presentations or video blogs.
- Training – Implementing mandatory training programs prior to providing access to firm-approved digital channels, including expectations for business and personal digital communications and guidance for using all permitted features of each channel.
- Disciplinary Action – Temporarily suspending or permanently blocking from certain digital channels or features those registered representatives who did not comply with the policies and requiring additional digital communications training.
- Digital Asset Communications – Maintaining and implementing procedures for firm digital asset communications, including:
- Risk Disclosure – Prominently describing the risks associated with digital assets, including that such investments are speculative, involve a high degree of risk, are generally illiquid, may have no value, have limited regulatory certainty, are subject to potential market manipulation risks and may expose investors to loss of principal.
- Communication Review – Reviewing firms’ communications to confirm that they were not exaggerating the potential benefits of digital assets or overstating the current or future status of digital asset projects or platforms.
- Communication to Differentiate Digital Assets From Broker-Dealer Products – Identifying, segregating and differentiating firms’ broker-dealer products and services from those offered by affiliates or third parties, including digital asset affiliates; and clearly and prominently identifying entities responsible for non-securities digital assets businesses (and explaining that such services were not offered by the broker-dealer or subject to the same regulatory protections as those available for securities).
- Reviews of Firms’ Capabilities for Cash Management Accounts – Requiring new product groups or departments to conduct an additional review for proposed Cash Management Accounts to confirm that the firms’ existing business processes, supervisory systems and compliance programs—especially those relating to communications—can support such programs.
- Use of Non-Member or OBA Names (so-called DBAs) – Maintaining and implementing procedures for OBA names, including:
- Training – Providing training on relevant FINRA rules and firm policies, and requiring annual attestations to demonstrate compliance with such requirements.
- Templates – Requiring use of firm-approved vendors to create content or standardized templates populated with approved content and disclosures for all OBA communications (including websites, social media, digital content or other communications) that also concern the broker-dealer’s securities business.
- Prior Approval – Prohibiting the use of OBA communications that concern the broker-dealer’s securities business without prior approval by compliance, and creating a centralized system for the review and approval of such communications, including content and disclosures.
- Notification and Monitoring – Requiring registered representatives to notify compliance of any changes to approved communications, and conducting periodic, at least annual, monitoring and review of previously approved communications for changes and updates.
- Regulatory Notice 20-23 (FINRA Encourages Firms to Notify FINRA if They Engage in Activities Related to Digital Assets)
- Regulatory Notice 20-21 (FINRA Provides Guidance on Retail Communications Concerning Private Placement Offerings)
- Regulatory Notice 19-31 (Disclosure Innovations in Advertising and Other Communications with the Public)
- Regulatory Notice 17-18 (Guidance on Social Networking Websites and Business Communications)
- Regulatory Notice 11-39 (Social Media Websites and the Use of Personal Devices for Business Communications)
- Regulatory Notice 10-06 (Guidance on Blogs and Social Networking Web Sites)
- Advertising Regulation Topic Page
- Social Media Topic Page