Industries

"Comment Period for Proposed Rule Requiring BrokerCheck Hyperlinks Expires on June 16, 2014"

June 2, 2014

By: Don McBride

On June 16, 2014, the comment period for FINRA Regulatory Notice 14-19 expires.  As reflected in the Notice, FINRA is proposing to amend Rule 2210 (Communications with the Public) to require broker dealers to include a hyperlink to BrokerCheck on each firm website and all “online retail communications with the public that include a professional profile of, or contact information for, an associated person” subject to certain exceptions and conditions.  The history and details of the proposed rule are set forth below.

Previous Proposal

Currently, FINRA Rule 2267 (Investor Education and Protection) requires broker dealers, once per calendar year, to provide all customers with the following in writing:  (1) FINRA’s BrokerCheck Hotline Number; (2) FINRA’s website address; and (3) a statement as to the availability to the customer of an investor brochure that includes information describing FINRA’s BrokerCheck.  On January 7, 2013, FINRA filed a proposal with the SEC to amend Rule 2267 to require firms to include a hyperlink to BrokerCheck’s summary page for firms and associated persons on their websites, social media pages, and “comparable internet presence,” including those that relate to a firm’s investment banking or securities business maintained by, or on behalf of, a firm’s associated persons.  FINRA proposed this amendment after participants in a focus group stated they were unaware of the existence of BrokerCheck.  After the SEC received 24 comment letters – which identified the challenges of implementing the requirements on third-party social media websites and the use of direct links to an associated person’s BrokerCheck summary page – FINRA withdrew the proposed rule on April 18, 2013.

Current Proposal

FINRA’s current proposal would amend Rule 2210 to require broker dealers to include a “readily apparent reference and hyperlink” to BrokerCheck within certain online retail communications.  The proposal includes three categories of online retail communications and certain exceptions.

The Update begins by establishing that an advisor may not invite clients to post public commentary directly on a website, blog or social media site that serves as an advertisement for the advisor. However, an advisor may publish the same public commentary on its website or social media site even though such commentary contains an explicit or implicit statements of clients’ experiences with or endorsements of the advisor if:

  • Firm Websites: Pursuant to proposed Rule 2210(d)(8)(A), all broker dealers will be required to include a readily apparent reference and hyperlink to BrokerCheck on all firm websites that are available to retail investors.  Pursuant to proposed Rule 2210(d)(8)(B)(i), communications made through a firm’s website that include a professional profile or contact information must include a hyperlink to BrokerCheck in close proximity to such information.
  • Third-Party Websites That Allow Hyperlinks: Pursuant to proposed Rule 2210(d)(8)(B)(ii), with respect to communications that appear on third-party websites that permit hyperlinks to other sites, firms will be required to either (1) post a hyperlink to BrokerCheck in close proximity to any professional profile or contact information or (2) post a hyperlink to the firm’s website with a disclosure that a hyperlink to BrokerCheck is available through the firm’s linked website.  In the Notice, FINRA states that it conducted trials of certain popular social media sites and found that the hyperlink requirement would be feasible on Facebook, LinkedIn, YouTube, and Pinterest.
  • Third-Party Websites That Do Not Allow Hyperlinks: Pursuant to proposed Rule 2210(d)(8)(B)(iii), where a communication is made through a third-party website that does not permit hyperlinks to other sites, firms will be required to provide the BrokerCheck web address in close proximity to any profession profile or contact information of an associated person and “to the extent feasible” provide a disclosure that information concerning the associated person is available through BrokerCheck.
  • Exceptions: Pursuant to proposed Rule 2210(d)(8)(C), the hyperlink to BrokerCheck requirements do not apply to email communications or text messages, retail communications posted in online interactive forums, broker dealers that do not provide services to retail investors, or to any directory that is limited to associated persons’ names and contact information.

FINRA's Request for Comments

In the Notice, FINRA requests comments for certain aspects of its proposal.  For example, FINRA questions whether the revised proposal addresses operational concerns that were previously raised.  Modifying the proposed rule to require hyperlinks to BrokerCheck within firm websites and retail communications is a step in the right direction.  Pursuant to Rule 2210(a)(5), retail communications are defined as “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.”  However, the current proposed rule requires the hyperlink to BrokerCheck “on each website of the member,” without defining which third-party social media sites, or communications generated from such sites, will be considered under the control of a firm or as a firm communication.  Citing Regulatory Notice 11-39, Notice 14-19 states that FINRA does not consider third-party communications as a firm’s communication unless the firm adopts or becomes entangled with the communication.   However, the comment period for the proposed rule presents an opportunity to seek greater clarification and guidelines – within the text of the proposed rule – to ensure that members understand when they will be required to include the hyperlink to BrokerCheck.

Another issue posed by FINRA is whether the revised proposal will increase investor use and awareness of BrokerCheck.  The proposed rule could increase investor ease of use and awareness; however these possible benefits should be weighed against the costs and burden of implementing the requirements and monitor compliance, particularly with respect to third-party webpages that are not under the direct control of the firm.  In addition, although a link to BrokerCheck’s home page could increase awareness, any increase would more than likely be marginal in light of Rule 2267’s current requirement that firms provide customers with annual, written reminders of the availability of BrokerCheck and its Hotline number.

Firms that may be affected by the proposed amendment to modify Rule 2210 should provide comment letters to FINRA no later than June 16, 2014.

If you have any questions about the matters covered in this publication, contact any member of Greensfelder's Securities and Financial Services Group or your regular Greensfelder contact.