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In recently published Regulatory Notice
19-31, FINRA responded to questions regarding how members can comply with
FINRA’s communications rules, Rules 2210 through 2220, when using electronic
media. FINRA issued this guidance to
facilitate simplified and more effective disclosure in communications with the
public, particularly in the context of members’ marketing and advertising of
their products and services using websites, email, social media, search
advertisements, mobile applications, and other electronic media.
FINRA encouraged members be precise and succinct in their
explanations and disclosures, noting that any additional explanations or
information beyond what is required for rule compliance cannot inhibit an
investor’s understanding of the required information. Further, FINRA explained that information
about risks, costs, or drawbacks are more effective when specifically related
to the benefits that the communication promotes.
FINRA provided the example of boilerplate language
irrelevant to the marketing message as well as disclosures for purposes other
than compliance with rule requirements, such as disclaimers related to business
relationships or disclosures about intellectual property, as detracting from
the impact of information required for the investor to understand the product
or service. FINRA also recommended members
consider whether information traditionally provided in footnotes, hedge
clauses, or disclaimers can be woven into the marketing message itself.
In regard to the extent of disclosure required, FINRA discussed
the types of communications and how the communications are used in the sales
process. While promotional
communications discussing the benefits of a particular product, type of
product, or service require balancing discussions of the risks or drawbacks,
non-promotional communications, such as brand communications, educational
communications, reference resources, and post-sale communications, may not
require the same level of detail.
We encourage our brokerage firm clients to consider the best method for providing required disclosures in their electronic media public communications, making sure to include sufficient information based on the type of communication, while also excluding any additional information inhibiting the investors’ understanding of the explanations or information required to be disclosed by the rules.