Communications with the Public

Regulatory Obligations and Related Considerations

Regulatory Obligations:

FINRA Rule 2210 (Communications with the Public) defines all communications into three categories—correspondence, retail communications or institutional communications—and sets principles-based content standards that are designed to apply to ongoing developments in communications technology and practices. New member firms are required to file retail communications with FINRA’s Advertising Regulation Department during their first year of membership.

FINRA Rule 2220 (Options Communications) governs members’ communications with the public concerning options. Additionally, MSRB Rule G-21 (Advertising by Brokers, Dealers or Municipal Securities Dealers) contains similar content standards relating to municipal securities or concerning the facilities, services or skills of any municipal dealer.

Related Considerations:

  • General Standards –
    • Do your firm’s communications contain false, misleading or promissory statements or claims?
    • Do your firm’s communications include material information necessary to make them fair, balanced and not misleading? For example, if a communication promotes the benefits of a high-risk or illiquid security, does it explain the associated risks?
    • Do your firm’s communications balance specific claims of investment benefits from a securities product or service (especially complex products) with the key risks specific to that product or service?
    • Do your firm’s communications contain predictions or projections of investment performance to investors that are generally prohibited by FINRA Rule 2210(d)(1)(F)?
  • Mobile Apps –
    • Has your firm established and implemented a comprehensive supervisory system for communications through mobile apps? 
    • Have you tested the accuracy of account information, including labels and data, displayed in your mobile apps?
    • Do your mobile apps accurately describe how their features work?
    • Do your mobile apps identify information in ways that are readily understandable, based on the experience level of your customers?
    • Do your mobile apps provide investors with readily available information to explain complex strategies and investments and associated risks?
    • If your firm offers an app to retail customers, does the information provided to customers constitute a “recommendation” that would be covered by Reg BI, and in the case of recommendations of options or variable annuities, FINRA Rules 2360 (Options) or 2330 (Members’ Responsibilities Regarding Deferred Variable Annuities)? If so, how does your firm comply with these obligations?
  • Digital Communication Channels –
    • Does your firm’s digital communication policy address all permitted and prohibited digital communication channels and features available to your customers and associated persons?
    • Does your firm review for red flags that may indicate a registered representative is communicating through unapproved communication channels, and does your firm follow up on such red flags? For example, red flags might include email chains that copy unapproved representative email addresses, references in emails to communications that occurred outside approved firm channels or customer complaints mentioning such communications.
    • How does your firm supervise and maintain books and records in accordance with SEC and FINRA Books and Records Rules for all approved digital communications?
    • Does your firm have a process to confirm that all business-related communications comply with the content standards set forth in FINRA Rule 2210?
  • Digital Asset Communications – If your firm or an affiliate engages in digital asset activities:
    • does your firm provide a fair and balanced presentation in marketing materials and retail communications, including addressing risks presented by digital asset investments and not misrepresenting the extent to which digital assets are regulated by FINRA or the federal securities laws or eligible for protections thereunder, such as Securities Investor Protection Corporation (SIPC) coverage?
    • do your firm’s communications misleadingly imply that digital asset services offered through an affiliated entity are offered through and under the supervision, clearance and custody of a registered broker-dealer?
  • Cash Management Accounts Communications – If your firm offers Cash Management Accounts, does it:
    • clearly communicate the terms of the Cash Management Accounts?
    • disclose that the Cash Management Accounts’ deposits are obligations of the destination bank and not cash balances held by your firm?
    • assure that its communications do not state or imply that:
      • brokerage accounts are similar to or the same as bank “checking and savings accounts” or other accounts insured by the Federal Deposit Insurance Corporation (FDIC); and
      • FDIC insurance coverage applies to funds when held at a registered broker-dealer?
    • review whether communications fairly explain the:
      • nature and structure of the program;
      • relationship of the brokerage accounts to any partner banks in the Cash Management Accounts;
      • amount of time it may take for customer funds to reach the bank accounts; and
      • benefits and risks of participating in such programs?
  • Municipal Securities Communications – If your firm offers municipal securities, does it confirm that advertisements for such securities include the necessary information to be fair, balanced and not misleading, and do not include:
    • exaggerated claims about safety or misleading comparisons to US Treasury Securities;
    • statements claiming “direct access” to bonds in the primary market if the firm is not an underwriter; and
    • unwarranted claims about the predictability or consistency of growth or payments?
  • If an advertisement includes claims of municipal securities being “tax free,” does it also explain any applicable state, local, alternative minimum tax, capital gains or other tax consequences?
  • If an advertisement advertises a “taxable equivalent” yield on a municipal security offering, does it provide sufficient information regarding the tax bracket used to make the calculation?

Exam Findings and Effective Practices

Exam Findings:

  • False, Misleading and Inaccurate Information in Mobile Apps –
    • Incorrect or misleading account balances or inaccurate information regarding accounts’ historical performance.
    • Sending margin call warnings to customers whose account balances were not approaching, or were below, minimum maintenance requirements.
    • Falsely informing customers that their accounts were not enabled to trade on margin, when the accounts were, in fact, margin enabled. 
    • Misstating the risk of loss associated with certain options transactions.
    • Distributing false and misleading promotions through social media and “push” notifications on mobile apps that made promissory claims or omitted material information.
  • Deficient Communications Promoting Digital Assets –
    • Falsely identifying the broker-dealer as the entity from whom digital assets may be purchased or creating confusion about which entity is offering digital assets by using identical or substantially similar names to the broker dealer’s name.
  • Misrepresentations in Cash Management Account Communications –
    • Misleading statements or claims that either state or imply the broker- dealer is a bank.
    • Misleading or false claims that state or imply the Cash Management Accounts are “checking and savings accounts.”
    • Inaccurate or misleading statements concerning the amount of FDIC insurance coverage provided to investor funds when they are held at a partner bank.
    • Incomplete or inaccurate claims concerning the amount of time it may take for customer funds to reach the bank accounts or be available to investors once deposited at a partner bank.
    • Inaccurate or misleading claims about the actual terms of the Cash Management Accounts.
    • Failure to balance promotional claims with the risks of participating in such programs.
  • Insufficient Supervision and Recordkeeping for Digital Communications – Not maintaining policies and procedures to reasonably identify and respond to red flags—such as customer complaints, representatives’ email, OBA reviews or advertising reviews—that registered representatives used business-related digital communications methods not controlled by the firm, including texting, messaging, social media, collaboration apps or “electronic sales seminars” in chatrooms.
  • No WSPs and Controls for Communication That Use Non-Member or OBA Names (so-called “Doing Business As” or “DBA” Names) –
    • Not maintaining WSPs to identify the broker-dealer clearly and prominently as the entity through which securities were offered in firm communications, such as websites, social media posts, seminars or emails that promote or discuss the broker-dealer’s securities business and identify a non-member entity, such as a representative’s OBA.
    • Not including a “readily apparent reference” and hyperlink to FINRA’s BrokerCheck in such communications.
  • Municipal Securities Advertisements – Using false and misleading statements or claims about safety, unqualified or unwarranted claims regarding the expertise of the firm, and promissory statements and claims regarding portfolio growth.

Effective Practices:

  • Comprehensive Procedures for Mobile Apps – Maintaining and implementing comprehensive procedures for the supervision of mobile apps, for example, that confirm:
    • data displayed to customers is accurate; and
    • information about mobile apps’ tools and features complies with FINRA’s communications and other relevant rules before it is posted to investors.
  • Comprehensive Procedures for Digital Communications – Maintaining and implementing procedures for supervision of digital communication channels, including:
    • Monitoring of New Tools and Features – Monitoring new communication channels, apps and features available to their associated persons and customers.
    • Defining and Enforcing What is Permissible and Prohibited – Clearly defining permissible and prohibited digital communication channels and blocking prohibited channels, tools or features, including those that prevent firms from complying with their recordkeeping requirements.
    • Supervision – Implementing supervisory review procedures tailored to each digital channel, tool and feature.
    • Video Content Protocols – Developing WSPs and controls for live-streamed public appearances, scripted presentations or video blogs.
    • Training – Implementing mandatory training programs prior to providing access to firm-approved digital channels, including expectations for business and personal digital communications and guidance for using all permitted features of each channel.
    • Disciplinary Action – Temporarily suspending or permanently blocking from certain digital channels or features those registered representatives who did not comply with the policies and requiring them to take additional digital communications training.
  • Digital Asset Communications – Maintaining and implementing procedures for firm digital asset communications, including:
    • Risk Disclosure – Prominently describing the risks associated with digital assets that are needed to balance any statements or claims contained in a digital asset communication, including that such investments are speculative, involve a high degree of risk, are generally illiquid, may have no value, have limited regulatory certainty, are subject to potential market manipulation risks and may expose investors to loss of principal.
    • Communication Review – Reviewing firms’ communications to confirm that they were not exaggerating the potential benefits of digital assets or overstating the current or future status of digital asset projects or platforms.
    • Communication to Differentiate Digital Assets From Broker-Dealer Products – Identifying, segregating and differentiating firms’ broker-dealer products and services from those offered by affiliates or third parties, including digital asset affiliates; and clearly and prominently identifying entities responsible for non-securities digital assets businesses (and explaining that such services were not offered by the broker-dealer or subject to the same regulatory protections as those available for securities).
  • Reviews of Firms’ Capabilities for Cash Management Accounts – Requiring new product groups or departments to conduct an additional review for proposed Cash Management Accounts to confirm that the firms’ existing business processes, supervisory systems and compliance programs—especially those relating to communications—can support such programs.
  • Use of Non-Member or OBA Names (so-called DBAs) – Maintaining and implementing procedures for OBA names, including:
    • Prior Approval – Prohibiting the use of OBA communications that concern the broker-dealer’s securities business without prior approval by compliance and creating a centralized system for the review and approval of such communications, including content and disclosures.
    • Training – Providing training on relevant FINRA rules and firm policies and requiring annual attestations to demonstrate compliance with such requirements.
    • Templates – Requiring use of firm-approved vendors to create content or standardized templates populated with approved content and disclosures for all OBA communications (including websites, social media, digital content or other communications) that also concern the broker-dealer’s securities business.
    • Notification and Monitoring – Requiring registered representatives to notify compliance of any changes to approved communications and conducting periodic, at least annual, monitoring and review of previously approved communications for changes and updates.
  • Municipal Securities Advertisements – Maintaining and implementing procedures for firm municipal securities communications, including:
    • Prior Approval – Requiring prior approval of all advertisements concerning municipal securities by an appropriately qualified principal to confirm the content complies with applicable content standards.
    • Training – Providing education and training for firm personnel on applicable FINRA and MSRB rules and firm policies.
    • Risk Disclosure – Balancing statements concerning the benefits of municipal securities by prominently describing the risks associated with municipal securities, including credit risk, market risk and interest rate risk.
    • Review – Reviewing firms’ communications to confirm that the potential benefits of tax features are accurate and not exaggerated.

Additional Resources

  • Regulatory Notice 21-25 (FINRA Continues to Encourage Firms to Notify FINRA if They Engage in Activities Related to Digital Assets)  
  • Regulatory Notice 20-21 (FINRA Provides Guidance on Retail Communications Concerning Private Placement Offerings)
  • Regulatory Notice 19-31 (Disclosure Innovations in Advertising and Other Communications with the Public)
  • Regulatory Notice 17-18 (Guidance on Social Networking Websites and Business Communications)
  • Regulatory Notice 11-39 (Social Media Websites and the Use of Personal Devices for Business Communications)
  • Regulatory Notice 10-06 (Guidance on Blogs and Social Networking Web Sites)
  • Advertising Regulation Topic Page
  • FINRA’s Social Media Topic Page
  • MSRB Notice 2019-07
  • MSRB Notice 2018-18
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