The announcement by a Wall Street firm that it plans to give its financial advisers limited access to social media websites has been viewed by many as inevitable. Morgan Stanley’s foray into the fast-changing world of social media highlights the difficulties faced by broker-dealers and investment advisers and the regulators who oversee them. As more financial firms follow suit, regulators will struggle to enforce securities laws that were written when the telephone and the telegraph were the prevailing social media. Federal securities laws require broker-dealers and investment advisers to comply with a panoply of detailed rules designed to ensure that customers and clients are not misled. The rules require them to keep records of every paragraph, sentence, and word – and now, every tweet. The challenge: how can financial firms comply with these strict rules while satisfying the market’s growing passion for communicating by texts and tweets? And how can regulators enforce two-dimensional securities laws in the new three-dimensional world? The exponential jump in social media usage has attracted the attention of federal securities regulators, who have responded with additional guidance and enforcement actions. The Financial Industry Regulatory Authority (FINRA), which regulates broker-dealers, published guidance on blogs and social networking websites in January 2010. This was followed by guidance on social networking websites and business communications, posted in August 2011.
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