Broker-Dealers (BDs) and Registered Investment Advisors (RIAs) are required to make and preserve certain records as governed by the Securities Exchange Act and FINRA record-keeping rules. In Minnesota, BDs and RIAs are also subject to record-keeping requirements under the Minnesota Securities Act and the Minnesota Administrative Rules. Record keeping ensures that the Securities Exchange Commission (SEC), self-regulatory organizations (SROs) and state securities regulators can effectively examine BDs and RIAs.
Under the Securities Exchange Act, BDs and RIAs must maintain the original copies of “books and records,” which includes books, accounts, records, memoranda, correspondence, and other communications relating to their “business as such.” These records must be kept in one of three formats: (1) paper form, (2) on micrographic media, or (3) on electronic storage media. However, firms do not need to keep records forever – only for a specified length of time, depending on the type of record. Unless a rule states otherwise, most records must be retained for at least six years.
Electronic communications relating to the BD or RIA’s business need to be retained for a minimum of three years. Electronic communication includes both internal correspondence (i.e., an instant message between BDs within a firm) and external correspondence (i.e., an email to the customer). All electronic communication must be monitored by the firm to ensure privacy and adequate retention of business-related communications.
FINRA has historically considered blogs and certain social media posts to be advertisements – but only if those postings are “static.” Static postings remain on a web page until the user updates them; such postings can be viewed by anyone who visits the web page. Advertisements need prior approval by a registered principal. Social media activity can transform from static to interactive; real-time interactive communications, like those on Twitter, Facebook Messenger, text messaging, or the comment section beneath a blog, do not need principal approval. FINRA considers these communications to be “public appearances,” and firms are required to supervise the content of public appearances.
Recently, FINRA has offered further guidance about retention of digital communications in Regulatory Notice 17-18. This Notice reminds regulated entities that determinations regarding whether social media communications must be retained depends on the content of the communication, not upon the type of device or technology used to transmit the communication.
Key takeaways of the Notice include:
All social media activity, regardless of whether it is static or interactive, needs to be retained if it pertains to business purposes. The basic test in deciding whether to use social media communication is: if a BD or RIA cannot capture and retain the required records for a particular form of electronic correspondence, they should not use that form of correspondence for business purposes. Firms should educate BDs and RIAs about the differences in business communications and non-business or personal communications to ensure business communications are retained. As different social media technologies develop, certain communications may become retainable. Read more about social media record retention here.
If a BD or RIA fails to maintain required records, they may be confronted with fines or disciplinary actions. Just take a look FINRA’s disciplinary report from earlier this year; it issued a $5,000 fine and suspended a broker for engaging in unapproved securities-related communications over text message and failing to capture and retain records of those communications.
Brian Edstrom is a Shareholder and Attorney at Avisen Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having spent several years working for federal and state regulators in Washington D.C. and Saint Paul, MN before entering private practice.
Emilee Walters is our first Avisen Legal Fellow alum and a third-year law student at the St. Thomas School of Law. Emilee is exploring a legal career in business law.