SOCIAL NETWORKING Christine M. Farquhar Managing Director, Compliance J.P. Morgan U.S. Private Banking FIRMA April 2010

Introduction: What is Social Media?

Social media sites like Facebook, Twitter, YouTube, or LinkedIn enable online and mobile users to: - Interact with others - Share information via video, audio and text - Publicly or privately broadcast information Even the new Consumer Financial Protection Bureau encourages communication through Twitter, Facebook, YouTube and Flickr.

FIRMA April 2010

1

Commercial Activities in the Social Media Space

• • • • • • • •

Promotions, contests and sweepstakes Branded pages/advertising User-generated content (UGC) Blogs Customer service and feedback Public relation issues Employment practices Disclosure of information to the public

FIRMA April 2010

2

What are the Risks in Using Social Media?

• • • • • • • • • • •

Terms of Use Intellectual property issues Right of Publicity Defamation FTC Rules around advertising, endorsement and testimonials Securities issues Security and Privacy Employment issues Inadequate monitoring Reputation Inadequate employee training

FIRMA April 2010

3

Broker-Dealer Related Issues FINRA Guidance March 2010 – Regulatory Notice 10-06 - Reminds firms that blogs, chat rooms, online seminars, and other social networking sites are subject to the same requirements as a presentation in person before a group of investors.

If internet communication is related to a broker dealer’s business, the communication will trigger the following:

• • •

SEC Rule 17a-3 and 17a-4 (Recordkeeping Requirements) Suitability Responsibilities under NASD Rule 2010 Prior Principal approval of content before posting

-

Static vs. Real-time Interactive Electronic Forums

FIRMA April 2010

4

Broker-Dealer Related Issues - Continued

• • • • • •

Supervision

-

Product suitability Risk-based reviews of incoming, outgoing and internal electronic communications necessary for the proper supervision of the Firm’s business

-

Research reports Identification and reporting of customer complaints

-

Identification and prior written approval of order error and other account designation change Implementation of written supervisory/internal control procedures to ensure that “associated persons who participate in social media sites for business purposes are appropriately supervised, have the necessary training and background to engage in such activities, and do not present undue risks to investors.” General policies must prohibit associated persons from engaging in business communications in any social media site that is not subject to the Firm’s supervision.

Restrictions on prior offenders Monitoring of social media sites Third-Party Posts

FIRMA April 2010

5

Social Media Policies

• • • • • •

Have a policy in place governing employee use of websites that utilize social media Have a social media policy in place governing company’s use of internal and external social media Provide training to employees on the policies and risks associated with use of social media Decide how you will treat, use and store consumer data or User Generated Content Strongly urge your clients to seek Legal and Compliance advice before embarking into the social media arena Employment Issues

•

Loss in productivity

• • •

Inappropriate conduct among employees Disclosure of confidential or proprietary information Employer liability for employee statements

FIRMA April 2010

6

Monitoring Inappropriate, damaging, and infringing content

•

Implement a system for monitoring

•

Respond appropriately

• • • • • •

Request removal from third party sites Reserve the right to remove content Do not ignore false or misleading content Do not ignore off topic remarks Consider responding through social media channels Consider legal action with caution

•

Promptly Escalate (LOB management, Compliance, Legal, Corporate Communications, Marketing, etc.)

FIRMA April 2010

7