Social media: Firming up the rules

Existing regulatory guidance has focused on the nature of communications — not the methods. But as those methods have been changing dramatically in recent years, firms have been looking to the regulators to clarify their expectations.

IIROC had published draft guidance for dealers in February, 2011 that set out the responsibility that firms have for reviewing and supervising sales communications to reflect the emergence of social media platforms such as Facebook, Twitter and LinkedIn.

And now, in response to industry comments, IIROC has finalized that advice, which should give some comfort to firms that have been cautious about allowing employees to use social media.

In particular, the regulators have clarified that firms are responsible for retaining all communications that relate to the business of the dealer, including social media communications (regardless of whether it’s delivered from a firm-issued device or a personal device).

IIROC’s guidelines specify that research reports issued by advi-sors who aren’t employed as research analysts have to be pre-approved by the firm. As well, best practices for monitoring and reviewing third party posts and communications have been clarified.

And IIROC now recommends that dealers prohibit advisors who have presented compliance risks in the past from using social media sites, and that dealers permit only advisors who have received specific social media training to use these sites.

One firm that has been eager to take advantage of social media is Toronto-based Macquarie Private Wealth Inc. The firm is working on a pilot project to get its advi-sors using social media. Silu Modi, vice president of digital marketing with Macquarie’s banking and financial services group, says his hope was to have Macquarie advisors making their first forays into social media by the end of 2011, or very early in the new year at the latest.

Macquarie’s pilot program will involve a small group of advi-sors; if all goes well and the firm is comfortable with the platform, then, Modi says, the program is likely to be expanded to a larger group of advisors within a few months.

Modi indicates that the final guidelines from IIROC are more or less in line with what he was expecting and won’t affect Macquarie’s pilot program, although, he notes, the regulator has helpfully clarified the guidance in a couple of areas.

Modi is about to start training a small group of Macquarie advi-sors on the firm’s new social media policy and the IIROC guidelines. The training program, which Modi has developed in conjunction with the firm’s compliance and legal group, is designed to ensure not only adherence to IIROC regulations and the firm’s policies but also social media best practices.

“It’s not just ‘Here’s what you cannot do’,” Modi says. “A large part of the training is ‘Here’s what you can, and should, do to actively engage your clients and your prospects in social channels.’ So, it’s not just about staying within the guidelines and the regulations — which is, of course, very important — but how to use social channels actively for best results.”

For now, Modi says, the aim of the pilot project is to ensure that everyone is comfortable with the firm’s social media platform.

Macquarie will be developing more tangible measures of success — whether advisors get results from social media — down the road.

“Right now,” says Modi, “as most firms are doing, it’s about exploring this channel as a means of doing business.”

While IIROC has been leading the way in developing guidance for investment dealers, so far, the Toronto-based Mutual Fund Dealers Association of Canada has not done the same for mutual fund dealers. Paige Ward, director of policy and regulatory affairs at the MFDA, indicates that the MFDA is continuing to monitor this area, and that many of its members have established their own policies to govern this kind of activity.

But, for now, the MFDA says, its existing rules for advertising and sales communications apply to social media.

At the provincial level, the Canadian Securities Admin-istrators has singled out compliance concerns with social media for issuers and investment managers, but not for the dealers that come under the CSA’s direct oversight.

In a notice published earlier this year, the CSA had warned issuers that using social media to drum up interest in their securities may not comply with securities laws.

And the CSA also has published a notice to provide guidance to fund managers on a variety of issues concerning their marketing practices, including the use of social media, which includes recommendations for supervising social media and ensuring record retention.

Now, as the regulators start to get their heads around the implications of social media, firms can start exploring its limits, too.  IE