You've Got Mail

Once upon a time, Ma Bell owned the phones, the U.S. Postal Service delivered all the mail, and for emergencies you sent a Western Union telegram. Then came faxes, email, instant messaging, bulletin boards, chat rooms, blogs, podcasts, WiFi and, well, who knows what tomorrow will bring? For better or worse, being unreachable when out of the office is now a quaint notion. But as the stock markets rose

Once upon a time, Ma Bell owned the phones, the U.S. Postal Service delivered all the mail, and for emergencies you sent a Western Union telegram. Then came faxes, email, instant messaging, bulletin boards, chat rooms, blogs, podcasts, WiFi and, well, who knows what tomorrow will bring? For better or worse, being unreachable when out of the office is now a quaint notion.

But as the stock markets rose to new heights on the backs of cell phones, PDAs, wireless innovation and all the attendant technology, our regulators threatened us for incorporating those same advances into our client relationships.

Just Say No?

Afraid of being second-guessed by FINRA, some member firms simply opted to block Internet access, and limit employees' electronic communications with one another and with clients to messages sent through an email address supplied by the FINRA-member b/d that is connected only to the b/d's communication network (and not third-party networks). This approach often makes it more difficult for registered persons to communicate with their clients. As all compliance veterans know, you increase the likelihood of lawsuits/arbitrations when customer communications are not responded to in a timely fashion, or such messages cannot be accessed from remote locations.

Amidst industry demands for clarity, FINRA recently published Regulatory Notice 07-49: Supervision of Electronic Communications: http://www.finra.org/web/groups/rules_regs/documents/notice_to_members/p037553.pdf (the Notice). The Notice acknowledges that employees want to use Internet-based email platforms such as AOL, Yahoo, Gmail, etc., or third-party systems such as Bloomberg and Reuters. Rather than reject such options, the Notice warns about the serious consequences of more open access, counsels members to reasonably supervise such alternatives and reiterates the need to retain covered communications. For example, FINRA-member b/ds could prohibit non-member email platforms for business purposes (and permit personal use), but should institute an annual or more frequent certification of employee compliance. The mantra here is to test and verify.

Is Message Boarding Wrong?

The Notice suggests blocking access to message boards related to the securities industry, and underscores the importance of preventing employees from communicating through these boards for business purposes. The Notice reminds members that message boards are advertisements under NASD Rule 2210, and such board postings must be approved prior to use, and in writing, by a registered principal.

Just The Fax, Ma'am

With the decline of traditional fax machines, E-faxes are growing in popularity, and FINRA now deems them e-communications that must be supervised.

  • E-faxes sent to 25 or more prospective retail customers within a 30-calendar-day period are sales literature under NASD Rule 2210, and must be pre-approved in writing by a registered principal.

  • E-faxes sent to 25 or more existing retail customers within any 30-calendar-day period that make any financial or investment recommendation, or otherwise promote a member's product or service, must be pre-approved in writing by a registered principal.

The Medium Is The Message

In addition to company-provided PCs and laptops, most employees have personal electronic devices, which could be used to communicate with the public. The Notice does not mince words on this subject. Member b/ds should prohibit use of these personal electronic devices for communications with the public for business purposes unless the member supervises, receives and retains such communications. The Notice places the onus for more liberal policies on the member.

Member b/ds should require pre-approval for the business-related use of any personal electronic communications device. The Notice suggests certain best practices:

  • Employees should submit a detailed business justification, with an annual re-certification of the rationale.

  • Member employees should be required to get written authorization for access to these devices.

  • Where appropriate, members should prohibit the use of such devices in sensitive locations (e.g., where material, non-public information could be accessed).

Writer's BIO: Bill Singer practices law at Stark &Stark, and is the publisher of RRBDLAW.com

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