The industry will shape the future of social media regulation, as FINRA auditors get out in the field and see how reps are using social media, said Stephen Selby, director of regulatory services for LIMRA, during a webinar Friday afternoon.

“The future of social media regulation, by nature, involves a certain amount of, well, quite frankly, poster children” for what not to do, Selby said.

FINRA notices “10-06 and 11-39 are primarily Q and A documents, which set forth particular facts and circumstances and apply current FINRA regulations to social media,” Selby said. These facts and circumstances are “what-if” scenarios that FINRA has come up with related to the use of social media.

“But in the future, as the field auditors at FINRA start taking a look at firms’ policies and procedures more closely, some of those situations will be referred up to enforcement,” Selby said. “And the industry will help to put forth new facts and circumstances potentially through enforcement.”

As social media is opened up to more reps, they will come up with new and novel ways to use the tool. But if they run afoul of the rules, they’ll be disciplined, fined or terminated, becoming poster children for how not to use social media. “Someone finds a new hot stove that they shouldn’t have touched, and they touched it anyway,” Selby added.

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Amy Sochard, director of programs and investigations for advertising and regulation at FINRA, agreed with Selby. She gave an example of one particular rep, Jenny Ta, who was using posts on Twitter to pump up a stock. “She had an interest in that,” Sochard said. “The key thing was something that was very basic, which is failing to disclose a conflict of interest. And that’s really where FINRA took her to task for her activities.”

She didn’t go through the firm’s procedure for getting posts approved, and she was disciplined as a result. Ta was fined $10,000 and suspended from association with any FINRA-registered firm for one year.

“Social media is really exciting, but don’t forget the basics are still going to apply here,” Sochard added. “People need to know about conflicts of interest; they need to know about risks, and that never goes away.”

But the industry will also likely shape best practices, although these will be discussed anecdotally at first, Selby said. For example, one best practice is related to recommending specific products in interactive communications, which is not allowed, Sochard said. Sochard recommends firms give their sales force template communications that are already pre-approved. One major wirehouse makes available a selection of pre-approved messages on a daily basis, she said.

According to Sochard, if the communication is related to the broker/dealer’s business, it will be subject to the SEC’s record and retention rules, “which are very strict and very broad.” But the site where it is posted doesn’t determine whether it has to be retained or not.

“The content of the communication is what’s going to determine it,” Sochard said. “So you can’t even say if it’s in this media, it’s business, and this media, it’s personal. It really comes down to content. Whatever is in the message, from the SEC’s standpoint, dictates whether it has to be retained.”

Business content involves not only products and services offered by the firm, but also general promotional material and anything that gets the brand of the b/d out there, Sochard added. Because the rules are so broad as to what constitutes business communications, firms should cast a wide net when coming up with policies and procedures for social media use.

“If the content is really driving toward the business end of the relationship, it really needs to be supervised,” Selby said. “If someone wants to keep their business use and personal use of social separate, they really need to actively manage that and to make sure that those are two separate identities. Any sort of bleeding over—the business world into their personal life—is going to demand supervision on the part of the broker/dealer.”