The Headmaster Has Spoken

On November 11th, the United Kingdom’s Financial Services Authority (FSA) announced that, starting in November 2011, mobile phone conversations by traders and other client-facing staff will have to be recorded (Policy Statement 10/17).  Specifically, firms have to record all “relevant conversations” for a period of six months on company-issued phones.  This new rule is designed to prevent market abuse and insider trading across the trading spectrum, including commodities, OTC instruments, futures, options, and ETFs.

Although at first read, it sounds draconian, when evaluated against the myriad accounting scandals and financial crises of the past fifteen years, the new rule makes sense.  It really is just an extension of firms’ existing practice of recording landline calls.  Whether it’s for risk management, dispute resolution, or compliance purposes, the need to record calls (whether landline or mobile) is real.  These days, brokers and traders have numerous communications channels at their disposal.  There are landlines, mobile phones, instant messaging, SMS, social media, peer-to-peer, and the list goes on and on.  Yet, their end goal remains the same:  execute deals, make money, clock fat bonuses.  Doesn’t matter what communications modality they use.  The raison d’etre of financial services firms is to make money.  Simple as that.  Any controls and regulations that are there to prevent global catastrophes, such as what happened in the fall of 2008, need to be evaluated objectively and with foresight to ensure that they meet current and future requirements.

Enter Policy Statement 10/17.  Although some firms have shown resistance to this new rule, it really is a natural evolution of the increasing regulatory control over these new real-time communications channels.  In the US, the Financial Industry Regulatory Authority (FINRA) has issued social media-specific guidelines (e.g., Regulatory Notice 10-06) for its 4,700 member brokerage firms and 637,000 registered securities representatives.  The explosion of sites like Facebook, LinkedIn, and Twitter is taking the mobile phone one step further.  They’re just another communications option for brokers and dealers to exploit.  If a broker is tied up in a meeting and can’t chat on his or her phone, he or she can simply SMS, IM, or use Facebook to send a message.

Although PS10/17 may seem like the ornery ol’ Headmaster wielding a big stick, it’s simply a reflection of the ever-changing dynamics in the communications landscape for financial services firms.

Who’s Your Daddy – Federal or State Regulations?

When it comes to regulation of the financial services industry, nearly all the focus to date has been at the national level.  The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have rightly been in the spotlight regarding the issuing of social media guidance for the financial services sector.  The scope of SEC and FINRA regulations extend across state borders and is applied even-handedly on a national level.  However, in August of this year, the state of Florida amended its own record-keeping regulations to reflect the growing trend of social media within the enterprise.  This was hammered home in an interview we did with Federal Computer Week, where we noticed that Florida was leading the way with respect to specific state guidelines for these new communications channels.

Before August of this year, Florida’s guidelines were drafted with only email in mind.  However, given the pace of change within the technology space and the plethora of communications channels now available, Florida realized that its record-keeping guidelines needed to be updated to reflect the changing times.  As a result, the state’s General Records Schedule for State and Local Government Agencies was amended to include SMS, BlackBerry PIN, MMS, Facebook, and Twitter within its scope.  Florida’s amendment created a buzz that other states would soon follow suit.  However, just last week, the state amended Rule 69W-100.007, stating that if an advertisement or piece of sales literature complies with NASD Rule 2210, then it does not have to be approved or filed with the Florida Office of Financial Regulation, effective September 30, 2010.

And for those in the dark about Rule 2210, it requires that a registered principal of a firm approve all advertisements and sales literature prior to use either electronically or in writing and that they all be maintained in a separate file for a period of three years from the date of last use.

What this essentially amounts to is deference to federal guidelines when it comes to overlapping provisions between federal and state bodies.  More specifically, the federal standard reigns supreme with respect to the marketing of financial instruments.  This clarification on the part of Florida really underscores the importance of remaining compliant with FINRA rules.  Other states are following in Florida’s footsteps by incorporating FINRA into their own guidelines.

We’ve got a solid handle on these SEC and FINRA rules because that’s right up our alley – making sure that companies in heavily-regulated industries stay compliant.  We’ve got over 1,500 customers, many of which are in the financial services industry.  In fact, we count nearly all of the top ten US banks as our customers and about two-thirds of financial services professionals in the US work at a company that uses FaceTime solutions.

FaceTime tracks regulatory developments closely to ensure that the latest trends are considered when building new features for our security, management, and compliance platforms – whether that’s for social networks or unified communications.  From the moderation of content to logging and archiving, when we’re specifically talking about social networks, Socialite offers a host of features that can calm the nerves of even the most frazzled compliance and legal officers.  At the end of the day, companies that are subject to FINRA regulations, for instance, rely on the level of attentiveness FaceTime applies to this sector and that our solutions are designed with the most applicable guidelines in mind.  Check out Facetime’s Mapping of FINRA Regulatory Notice 10-06 to Facebook, LinkedIn, and Twitter to see what I mean.