The Investment Industry Regulatory Organization of Canada has issued a draft guidance spelling out how firms and advisors should address compliance and supervision issues when using social media websites for business purposes.

On Monday, IIROC published updated guidelines dealing with the review and supervision of advertising, sales literature and correspondence that address that the increasing use of social media, such as Facebook, Twitter and blogs.

The updated guidance aims to address “the unique compliance and supervisory issues” that may arise when reps use social media to communicate with clients and the public for business purposes. It is also intended to provide dealers with guidance for designing policies for reviewing, supervising, and retrieving various forms of communications.

The proposed new guidance would replace a notice issued back in April 2004, which focuses on the nature of various communications and not on the methods by which communications are disseminated. However, the notice indicates that the evolution in methods of communication has led to a number of questions from dealers regarding the application of IIROC’s rules to these newer forms of communication.

“All methods used to communicate including, but not limited to, Facebook, Twitter, blogs, and chat rooms, are subject to the IIROC [rules],” it says, and the content of the notice has been updated “to clarify that regardless of the method by which communication takes place, [dealers] must ensure compliance with applicable regulatory requirements and securities legislation.”

The guidance notes that, “As long as web sites are adequately supervised and do not violate any regulatory or legislative requirements, [dealers] and their [reps] are permitted to use these sites and/or technology to communicate with clients and the public for business purposes.”

However, there are a number of specific considerations. For example, static content, such as a profile, background or wall information, would usually be considered an ‘advertisement’, and must be pre-approved. Whereas interactive discussions that take place through sites such as Facebook and Twitter don’t require prior approval, but must be supervised to ensure compliance with IIROC rules and securities legislation.

The draft guidance also says it would be considered a violation of IIROC rules for registered reps to make anonymous representations or recommendations using any method of communication.

It also suggests that dealers should “exercise extreme caution” when engaging in third party communications, such as allowing third parties to comment or post on a dealer’s web site, linking to a third party’s web site, and securing sales communications from a third party site.

“Third party posts may be attributed or considered an endorsement by the [dealer], thereby triggering regulatory and legislative requirements,” it says. “For example, re-tweeting a client’s post or providing a thumbs-up may be considered an endorsement.”

The draft guidance is out for comment for 60 days.

IE