With technological advances come new legal complications.
Computers and similar electronic miracles enable instant worldwide communications have revolutionized our civilization. There is little doubt that the advances in communications have facilitated the transmission of financial information and, thereby, made all of us involved in the financial world better able to contact our clients to provide our thoughts on developments in the marketplace. At the same time, these advances in communication present challenges in assuring that the information provided is accurate, complete, and in compliance with the plethora of laws, regulations, and corporate rules applicable to modern business in the financial-services world.
Since the Internet has become so universal in its use, legislators, lawyers, and the courts, as well as regulators and compliance personnel, have wrestled with the proper place of the communications revolution in the world of financial services. The so-called "social networking" facilities that have been developed in the past few years have made this challenge even more daunting. For years we have worried about the use of personal computers--particularly the more-mobile ones--to subvert the various rules applicable to sales communications between financial planners and their clients. We first developed concern with the use of "free-form" software for life insurance illustrations. As the genre has expanded, we grow ever more wary about how much latitude should be available with these new communication tools--particularly since many social-networking services have spotty or nonexistent archiving capabilities.
Lawyers and the courts have had great difficulty coping with the evidentiary requirements posed by the Internet in general. Dealing with social networking in evidence is still a developing area of the law. It is pretty well settled that e-mail communications are admissible in evidence, subject only to the generally applicable rules of evidence. Judges have long required litigants to provide adverse parties with "relevant" e-mail files in pretrial or pre-arbitration discovery. These requirements presume that e-mail files are, in fact, maintained. The difficulty arises over the word "relevant." Determining what is relevant becomes a particularly difficult task in the spam-infested Internet world and is exacerbated by the availability of multiple e-mail addresses. Many investment advisory and brokerage firms have installed complicated software to archive e-mail communications so that messages can be made available for litigation and regulatory purposes. These software packages, in order to accomplish their goals, must restrict business e-mail to business purposes and must have sophisticated spam filters to separate the "relevant" business communications from the junk. Otherwise, the e-mail files would be useless because of their very volume. Despite these well-established rules, we see regular reports of litigants being sanctioned because "lost" e-mail files containing embarrassing admissions were "found" that had not been provided to the opposing parties.
FINRA appears to have liberalized sales communication rules with respect to social-networking applications like Twitter. The distinction seems to be whether such a social networking application is used for real, spontaneous communication like what would be contained in a telephone call or it is used as a true sales presentation. Obviously, the difference is in the eye of the beholder, with no clear boundaries. Lawyers and compliance officers will cringe at the thought of being presented with copies of social-networking communications during arbitrations or at trial when it is the first time they have seen them. There is a dramatic difference between someone relating the substance of a telephone call in oral testimony and someone presenting an exact copy of a written social networking communication. Either form of communication may include difficult admissions, but there is a much stronger "truth" in the written communication than there is in an oral recollection of a telephone call.
The easiest way to avoid this problem is to forbid business communication via social networks. If we keep business communications to business formats and business Internet sites, we can have a much better chance of controlling what is said and of being sure that we know for sure what embarrassing information may be in existence. We recognize that social networking is the communication method of choice for a large segment of our society--particularly among the younger generations. Nevertheless, the potential for abuse and for unpleasant surprises is so great that we question whether the business use of social networking is worth the risk. That being said, making a broad prohibition work in the real world may be easier said than done, particularly when many people use these forms of communication without thinking. Moreover, policing social networking communications may be virtually impossible without new technology that can give broader access and permanence to this presently ethereal technology.
Regardless of the decision that the management of advisory and brokerage firms may make regarding the use of social-networking facilities for business communications, it is necessary for everyone in the financial-services industry to be aware of the technology, the risks involved and the uses to which our people put this new communication development. Rules need to be established and to be enforced.
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