Communications with the Public

Regulatory Obligations and Related Considerations

Regulatory Obligations

FINRA Rule 2210 (Communications with the Public) defines all communications into one of 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 all widely disseminated retail communications with FINRA’s Advertising Regulation Department during their first year of membership, and all member firms are subject to filing requirements for specified retail communications depending on their content.

FINRA Rule 2220 (Options Communications) governs member firms’ 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 Content Standards
    • Are your firm’s communications free of false, misleading, unwarranted, 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 benefits from a 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
    • Does your mobile app include appropriate risk disclosures at account opening or before a customer transaction?
    • Do your mobile apps adequately distinguish between products and services of the broker-dealer and those of affiliates or third parties?
    • Has your firm established and implemented a reasonably designed 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 easily understandable, based on the experience level of your customers?
    • Does any information provided to retail customers through your mobile apps 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?
  • Crypto Asset Communications: If your firm communicates with retail customers concerning crypto assets and crypto asset-related services, do its retail communications to customers contain a fair and balanced presentation of the risks associated with these assets (without unwarranted or misleading content)?1
  • Municipal Securities Communications
    • If your firm offers municipal securities, does it confirm that “advertisements” for such securities—as defined under MSRB Rule G-21—include the necessary information to be fair, balanced and not misleading, and do not include:
      • exaggerated claims about safety or misleading comparisons to U.S. Treasury securities;
      • statements claiming “direct access” to bonds in the primary market if your firm is not an underwriter; or
      • 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 includes a “taxable equivalent” yield on a municipal security offering, does it provide sufficient information regarding the tax bracket used to make the calculation?
  • Communications Promoting Income Sharing Programs: If your firm distributes or makes available communications that promote or recommend income sharing programs to retail investors (e.g., fully paid securities lending programs), do the communications accurately and clearly disclose the terms and conditions of the program, including fees customers would receive?
  • Communications Promoting ESG Factors: If your firm offers products that promote environmental, social and governance (ESG) factors, do your communications:
    • contain only claims that are supported by or consistent with information contained in the product’s offering documents;
    • contain risk disclosure or language necessary to balance any promotional claims regarding ESG; or
    • use rankings, ratings or awards that lack a sound basis or are unwarranted or misleading based on the criteria used or factors considered?

Findings and Effective Practices

Findings

  • False, Misleading and Inaccurate Information in Mobile Apps:
    • Misstating or failing to disclose the risk of loss associated with certain options transactions.
    • Distributing false or misleading promotions through social media and “push” notifications or “nudges” on mobile apps that made promissory claims or omitted material information.
    • Failing to fully explain and clearly and prominently disclose risks, where required by a specific rule or needed to balance promotional claims, associated with options trading, the use of margin and crypto assets.
  • Deficient Communications Promoting Crypto Assets:
    • Failing to appropriately and accurately address relevant risks and include appropriate disclosures in communications with the public.
    • Disseminating promotional materials that contain material misstatements or omissions in connection with securities offerings.
    • Failing to clearly differentiate in communications, including those on mobile apps, between crypto assets offered through an affiliate of the member or another third party, and products and services offered directly by the member itself.
    • Making false statements or implications that crypto assets functioned like cash or cash-equivalent instruments, or making other false or misleading statements or claims regarding crypto assets.
    • Comparing crypto assets to other assets (e.g., stock investments or cash) without providing a sound basis to compare the varying features and risks of these investments.
    • Providing misleading explanations of how crypto assets work and their core features and risks.
    • Failing to provide a sound basis to evaluate crypto assets by omitting explanations of how crypto assets are issued, held, transferred or sold.
    • Misrepresenting the extent to which the federal securities laws or FINRA rules apply to crypto assets.
    • Making misleading statements about the extent to which certain crypto assets are protected by SIPC under the SIPA.
  • Municipal Securities Advertisements: Making 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.
  • Communications Promoting ESG Factors:
    • Using fund communications that contain ESG-related claims that are inconsistent with or unsupported by the fund’s offering documents.
    • Including ESG rankings, ratings, or awards that are unwarranted or misleading based on the criteria used or factors considered.

Effective Practices

  • Reasonably Designed Procedures for Mobile Apps: Maintaining and implementing 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.
  • Reasonably Designed Procedures for Digital Communications: Establishing, maintaining and enforcing procedures for supervision of digital communication channels, including:
    • Monitoring of New Tools and Features: Monitoring new communication channels, apps and features available to associated persons and customers;
    • Defining and Enforcing Permissible and Prohibited Activity: Clearly defining permissible and prohibited digital communication channels, tools and features, and blocking those prohibited channels, tools and features 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; and
    • 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 before resuming use.
  • Crypto Asset Retail Communications Review: Ensuring that retail communications concerning crypto assets provide a fair and balanced presentation of the risks associated with these assets, including:
    • the speculative nature of crypto assets (e.g., their significant volatility, the potential for investors to lose the entire amount they invest);
    • the lack of legal or regulatory protections for most crypto assets (e.g., SIPC protections apply only to cash and securities held for an investor for certain purposes in a customer securities account at a SIPC-member broker-dealer and do not apply to crypto assets that do not qualify as SIPA “securities”), the extent to which the protections provided by transacting through a SEC-registered entity will apply;
    • regulatory uncertainty concerning the crypto assets; and
    • fraud risks that may be present.
  • Differentiating Crypto Asset Products Communications From Broker-Dealer Products Communications: Identifying, segregating and differentiating firms’ communications related to broker-dealer products and services from those related to offerings by affiliates or third parties, including crypto asset affiliates; and clearly and prominently identifying in communications non-broker-dealer affiliates or other third-parties responsible for non-securities crypto 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).
  • Municipal Securities Advertisements: Maintaining and implementing reasonably designed procedures for firm municipal securities communications, including:
    • requiring prior approval of all advertisements concerning municipal securities by an appropriately qualified principal to confirm the content complies with applicable content standards;
    • providing education and training for firm personnel on applicable FINRA and MSRB rules and firm policies;
    • 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; and
    • reviewing firms’ communications to confirm that the potential benefits of tax features are accurate and not exaggerated.
  • Communications Promoting ESG Factors: Implementing and maintaining reasonably designed procedures for communications promoting ESG factors, including:
    • reviewing communications to ensure that ESG-related claims are consistent with and supported by applicable offering documents;
    • balancing statements promoting ESG factors by prominently describing the risks associated with ESG funds, including that:
      • ESG-related strategies may not result in favorable investment performance;
      • there is no guarantee that the fund’s ESG-related strategy will be successful; and
      • the fund may forego favorable market opportunities in order to adhere to ESG-related strategies or mandates.

Additional Resources

  • FINRA
  • MSRB
    • MSRB Notice 2019-07 (MSRB Establishes Effective Date for Advertising Rules and Provides Social Media Guidance and Related Rule Amendments)
    • MSRB Notice 2018-18 (SEC Approves Advertising Rule Changes for Dealers and Municipal Advisors)
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1 See the Report’s Crypto Assets topic for an update on FINRA’s ongoing targeted examination on crypto asset retail communications.