The Investment Industry Regulatory Organization of Canada has issued new guidance regarding sales communications that reflects the emergence of social media.
Released Wednesday, the new guidance replaces previous advice to dealers on developing policies and procedures for reviewing and supervising communication materials. The previous guidance focused on the nature of various communications and not on the methods of dissemination. However, as the methods of communication have changed significantly, with the increasing use of social media websites, such as Facebook, Twitter, YouTube, blogs, and chat rooms, IIROC says that dealers have been seeking guidance that reflects these developments.
The updated guidance indicates that all methods of communication, including social media, are subject to the IIROC’s rules. It clarifies that, regardless of the method of communication, and however social media websites evolve, dealers must ensure compliance with applicable regulatory requirements and securities legislation.
The notice addresses the unique compliance and supervisory issues dealers and reps must consider when using social media websites to communicate with clients and the public for business purposes; and, in designing policies and procedures for the review, supervision, retention and retrieval of these materials.
The guidance notes that whether a communication is related to the business of a dealer, and therefore captured by record keeping requirements, depends on the content of the communication, not the type of device used to transmit the communication, so dealers must design systems and programs with record retention and retrieval capabilities that match the methods of communication permitted at the firm, including content posted on social media sites.
Dealers must be aware of the additional regulatory obligations that may be triggered as a result of the content of a communication delivered to clients, the guidance notes. “For instance, a ‘recommendation’, whether delivered via a social media website or by way of written correspondence, must take into consideration the suitability requirements,” it says, adding that, at the very least, dealers should implement measures to monitor and/or prohibit electronic communications that constitute a recommendation which must comply with IIROC’s suitability rules.
Additionally, dealers must establish policies and procedures that allow them to comply with their supervisory obligations and protect clients from misleading or false statements.
“With regard to social media websites used for business purposes, such as blogs, LinkedIn, Twitter, YouTube, chat rooms and Facebook, [dealers] are faced with supervisory challenges,” it notes. “Specifically, IIROC staff has received a number of enquiries relating to interactive versus static content as well as password protected versus accessible websites.”
Static content must be pre-approved, whereas an interactive electronic forum, such as Facebook or Twitter, does not require prior approval, but must be supervised to ensure compliance with IIROC rules and securities legislation. However if interactive content becomes static, this static content dos have to be pre-approved.
In terms of password protection, the guidance indicates that whether a social media website is password protected, or not, does not determine whether it’s an acceptable method of communicating with clients. “As long as websites are adequately supervised and do not violate any regulatory or legislative requirements, for example, record retention, [dealers] and their representatives are permitted to use these sites and/or technology to communicate with clients and the public for business purposes,” it says.
The guidance also indicates that, while clients and registered reps should be strongly discouraged from communicating order instructions via email or voice-mail, if they choose to use these methods of communication, clients should be warned of the risks.
It also says that dealers should “exercise extreme caution” when engaging in third-party communications, such as permitting third parties to comment or post on their website, or providing links on their website to a third party website. “Third-party posts may be attributed to or considered an endorsement by the [dealer], thereby triggering regulatory and legislative requirements. For example, re-tweeting a client’s post or providing a “thumbs-up” may be considered an endorsement,” it says. Using disclaimers will not necessarily relieve dealers of their responsibility for third-party posts, it says, and it suggests best practices for third-party communications.