SEC Alerts Investment Advisers About Risks Posed by Social Media

January 11, 2012Articles Westlaw News & Insight Securities Blog

With the explosion in the use of social media by investment advisors, compliance departments have faced a Herculean task to stay on top of its use. The ways in which social media can be used is only limited by an individual's creativity. Considering the tremendous upswing in the use of social media, the SEC recently issued a National Examination Alert to provide registered investment advisers with guidance in this burgeoning area.

In accordance with Rule 206(4)-7, firms that use social media need to adopt and periodically review the effectiveness of policies and procedures regarding the use of social media. The SEC recently identified RIAs of varying sizes that are using social media to assess whether they are complying with securities laws. A key failing that the SEC found with current policies and procedures is that the social media policy overlaps with other policies, rather than being unique in their own right. The lack of clarity of compliance policies that apply exclusively to social media can only lead to confusion over what polices apply.

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