IIROC says aye to social media

The relentless lobbying for social media has finally extracted a grudging nod from the Investment Industry Regulatory Organization of Canada (IIROC).

“In response to the increasing use of social media web sites, such as Facebook, Twitter and blogs, IIROC staff has updated the content of the existing Guidance Notice MR0281 to address the unique compliance and supervisory issues when using social media web sites to communicate with clients and the public for business purposes,” says the new IIROC rules notice.

The guidelines – with a 60-day deadline for comments from dealers and other interested parties – also aim to provide “Dealer Members with considerations when designing firm policies and procedures for the review, supervision, retention and retrieval of various forms of communications.”

Previously, the rules focused on the nature of communications rather than delivery mechanism. The ever increasing use of social media, however, changed the game and the recent amendment seems to recognize as much.

“All methods used to communicate including, but not limited to, Facebook, Twitter, blogs, and chat rooms, are subject to the IIROC Dealer Member Rules,” said the new content of the notice.

The updated Notice also maintains that regardless of the method of communication, dealers are obliged to ensure compliance with applicable regulatory requirements and securities legislation.

It also addresses the unique compliance and supervisory issues dealers and their registered representatives must consider when using social media for business activities, and when fashioning firm policies and procedures for the review, supervision, retention and retrieval of content.

This will bring a sigh of relief from the financial services fraternity many of whom found it frustrating not to be able to leverage a potent business tool. Many others have been using it anyway.

Supporters of social media within the industry often argued that the evolution of Web 2.0 and its pervasiveness in society has caused a mismatch between expectations of clients and what the industry was able deliver.

For almost a decade, the industry regulation – and corporate prohibition because of that – have remained the biggest factors in discouraging more advisors from using social media. Prohibition as a strategy, many asserted, was not going to work for long. “Firms feel that if they don’t allow it then in some way they’re controlling the risk associated,” Lisa Langley, a former vice-president of member services at IIROC, had said at a recent conference.

With the new rule, the firms should now be able to focus on managing the flow rather than trying to plug the leak.

Financial advisors have for long felt like a beetle nut caught between the contrary edges of a nutcracker. The crushing force of social media revolution on one side, an intransigent regulatory regime on the other. The IIROC news is expected to pave the way for qualified opinion to reach clients already actively engaged in social media.

Social media represents an unparalleled opportunity for the financial industry. But as public becomes the new private, it also represents an unheralded responsibility.