30/01/2012 Author: David Beattie

SEC hones in on social media as it issues alert over investment advisers' usage

The US Securities and Exchange Council’s office of compliance has issued an alert to registered investors over their use of social media, citing its increasing usage and urging firms to adopt and regularly review their procedures for dealing with its growing prevalence.

Social media giants Facebook and Twitter were name-checked in a review of the alert by legal major Dechert, however this was by no means an exhaustive list and is widely understood to cover other outlets and blogs.

The SEC noted that many firms vary in their compliance approach to social media, and that there are often multiple overlapping procedures that are generally applicable to the use of social media, rather than one single, unified social media policy.

“The staff expressed concern that these overlapping procedures – covering, for example, advertisement, client communications, or electronic  communications – may create confusion regarding their application to the use of social media by investment advisory personnel and the types of social networking activity that are permitted or prohibited by an investment adviser”, it added.

The SEC alert also set a non-exhaustive list of factors that investment advisers are encouraged to consider when evaluating their social media policies. These include usage guidelines on appropriate and inappropriate use of social media for representatives and solicitors; standards for content created by the firm or its representatives or solicitors; policies and procedures to address representatives or solicitors who conduct business on the firm’s behalf. Additionally it noted that if the investment adviser is part of a larger corporate enterprise, it may wish to consider guidelines applicable to the entire organisation.

For monitoring purposes it advises frequent monitoring of representative or solicitor activity; the approval or pre-approval
of posted content; sufficient dedication of compliance resources; a criteria for the approval of participation; training for representatives; certification covering representatives’ and solicitors’ understanding of the procedures; and an understanding of the risk of information security posed by representative access to social media websites.

The alert also notes that the Advisers Act record-keeping obligations did not differentiate between various types of media used to communicate with current or prospective clients.

Continuing, it said the SEC’s view is that the content of the communication would determine whether or not it would prompt record-keeping responsibilities.

Investment advisers, it concluded, should consider reviewing their document retention policies to ensure that any records required by federal securities laws are retained and easily accessible for the requisite period.