Changes sought in MSRB guidance on MA use of social media

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WASHINGTON – The Municipal Securities Rulemaking Board should revise its guidance on the use of social media by municipal advisors under its new advertising rule to clarify its stance on whether third-party posts and comments could cause violations of the rule, the National Association of Municipal Advisors told the board.

NAMA Executive Director Susan Gaffney wrote about the group's concerns in a letter answering the MSRB’s request for comment on its Aug. 14 draft guidance.

The draft on social media is one of three sets of guidance released by the MSRB in advance of the Feb. 7, 2019 effective date of its new Rule G-40 on advertising by municipal advisors. That rule both defines what an advertisement is and sets out certain content standards for advertisements, including that they must not be misleading and cannot contain client testimonials.

The 17-page guidance in a frequently-asked-questions format addresses whether social media use by a muni advisor, broker-dealer firm, or individual might be an advertisement. It also addresses whether the MSRB’s advertising restrictions would apply to the content to which a firm provides a link.

The FAQs explain that generally any content published, including online, can be an advertisement if it relates to the products and services offered by an MA firm.

They also explain that material on a third-party website provided through a link could potentially fall under the advertising rules if the MA or dealer firm either implicitly or explicitly involve itself in the production of that content or approval of that content.

In her comment letter, dated Sept. 17, Gaffney told the MSRB that the guidance should be more focused and also called into question what she said appeared to be inconsistencies in how the board is applying its principles across different rules.

A section discussing the need for muni advisors to save social media communications like posts and messages as part of their existing recordkeeping requirements is an important point, Gaffney told the MSRB, but is not directly related to the advertising rule and so should be either removed from the guidance or placed in a separate shaded box.

Gaffney also asked for some clarifications about the threshold for when the MSRB believes social activity becomes an advertisement.

“The MSRB should clarify that a mere identification that a person is an employee of a municipal advisor is not covered by advertising rules,” Gaffney wrote. Examples could include a post announcing that the individual has been hired by an advisory firm or including the name of the firm in their profile showing that they are employed there.

If the MSRB does not think such social media activity in isolation from other language advertising MA services rises to the level covered by G-40, “it should make that very clear,” Gaffney wrote.

Gaffney also noted that the MSRB’s social media guidance states that third-parties can post testimonials on an MA’s social media page without it being a G-40 violation, but previous guidance on testimonials stated that MAs could not use testimonials on their web pages or in other mediums. This appears to create two different standards, Gaffney wrote, and could warrant revisiting the MSRB’s position on the use of testimonials by MAs.

Multiple commenters raised a point about static vs. interactive content on social media. Chats are interactive and could be treated like any other type of correspondence, wrote Securities Industry and Financial Markets Association Managing Director, Associate General Counsel and co-head of munis Leslie Norwood.

“The current language of the MSRB FAQ could be interpreted to require pre-approval of almost any use of social media,” wrote Norwood, urging the MSRB to re-tool the guidance to mirror that of the Financial Industry Regulatory Authority. FINRA draws a distinction between static and interactive content, requiring a registered principal to pre-approve static but not interactive content.

Bond Dealers of America Chief Executive Officer Mike Nicholas wrote that the MSRB guidance should be changed to state that recordkeeping requirements should apply to third-party posts on an individual's social media page only in “extremely limited circumstances.” Currently, the guidance appears to mean that any post regarding municipal securities or muni advisory activity is subject to recordkeeping rules.

“By taking this position, the MSRB would be effectively mandating an extraordinary intrusion by registrants into the personal activities of associated persons,” Nicholas wrote. “Subjecting an associated person’s own posts regarding the registrant’s business on a social networking site to the recordkeeping and record retention rules is reasonable. However, third party posts should not be subject to those rules unless solicited or adopted by the associated person.”

The MSRB may choose to reissue the guidance with changes once it has reviewed the comments.

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