SEC: Social Media Poses Risks for Registered Investment Advisers

New York Investment adviser attorney Everyone is using social media these days, including registered investment advisers. Social media allows advisers to communicate with existing and potential clients, promote services, educate investors, and recruit new employees.

While social media offers many benefits, if not used properly, it can lead to compliance problems. To address this concern, the SEC recently issued a National Examination Alert to provide registered investment advisers with guidance in this new and growing area.

Most importantly, pursuant to Rule 206(4)-7, advisers and firms that use social media need to adopt and periodically review the effectiveness of policies and procedures regarding the use of social media. In addition, use of social media must comply with various provisions of the federal securities laws, including, but not limited to, the antifraud provisions, compliance provisions, and recordkeeping provisions.

To help ensure compliance, the SEC suggests that firms consider the following when developing and implementing social media polices and procedures:

  • Usage guidelines where firms can list approved sites;
  • Content standards or pre-approval of content;
  • Monitoring and frequency of monitoring;
  • Allocation of firm resources to social media;
  • Enumerating criteria to approve participation;
  • Training that aims to promote compliance and prevent violations;
  • Certification confirming individuals understand and are complying with the firm’s social media policies and procedures.;
  • Functionalities of social media sites;
  • Use of personal sites by advisors;
  • Information security; and
  • Enterprise wide sites.

The Message for Advisers

Firms need to carefully review their social media policies and procedures to ensure compliance with all applicable securities laws. In addition, training and monitoring should be implemented to track compliance and remedy any potential problems before they expose the firm to liability. For more details, the National Examination Alert is available here.

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