Possible Structuring
Penny Stock Liquidation Detected
Penny Stock Transfer
Similar Amount on Opposite Side (Deposit vs. Withdrawal)
Correspondence Review
Knowtice Analytics’s Marketing Correspondence Review platform provides for a centralized place to both maintain the proposed and approved communication materials as well as track the entirety of the approval process, including the discussions between the parties that propose and approve the communication materials.
The platform contains within a single “card” each marketing material, its context, use and the discussions between the author of the marketing materials and the compliance officer. Each party is notified via email when the card is ready for their review within the platform.
All discussions on the communication within the platform are time-stamped and identify the person making the comment and/or change in the materials in furtherance of maintaining a log documenting the approval process. The home page of the platform relays the status of each communication discussion.
Upon the approval of the communication, the platform documents such basis and records the use of the approved materials and the date of such use. For any internal or regulatory inquiries, the platform provides an Export function which provides for a summary of the contents within a searchable timeframe.
To assist Compliance with the review of the actual content of the correspondence material, the Marketing Correspondence Review platform provides aggregated insights collected from FINRA Advertising Regulation Department’s actual comment letter to broker-dealers. The searchable tool outlines statements that were proposed to FINRA ADV, their comment on the issue(s) with such statement and the rule reference, if any. Knowtice Analytics provides such guidance on an anonymous basis from its broker-dealer clients and invites clients – through “crowdsourcing” – to participate in expanding the library of guidance.
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Problem
The application of Rule 2210 to communication and advertising materials is one of the vaguest areas within securities regulations. Guidance from FINRA’s Advertising Regulation is only valid to the specific materials submitted for their review. With the advent of 3rd parties (e.g. social media influencers) being utilized in marketing broker-dealers’ services, the “Communications with the Public” rule has gained special prominence with FINRA’s Enforcement.
In addition to employing the analytical skill required to apply Rule 2210 content standards to a particular marketing piece, three (3) recent cases appear to also require broker-dealers to maintain a system which centralizes the materials, analysis and approvals for each communication requiring 2210 reviews.
WHO: Any FINRA member that transmits marketing communications – whether through emails, mailers, social media or via their website – is subject to the content standards of FINRA Rule 2210. Even for materials that are not submitted for review through FINRA’s Advertising Regulation Department, such communications are subject to internal reviews, approvals and storage requirements.
Firms Fined for Inadequate Marketing Supervision
In March 2024, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that were not fair or balanced, or contained exaggerated, unwarranted, promissory or misleading claims. This was first social media influencer-related FINRA Enforcement disciplinary action. As M1 Finance did not review or approve the content in its influencers’ posts prior to use or retain those communications, the findings also stated that M1 Finance failed to have a reasonable system…for supervising the communications that the firm’s influencers made on its behalf.
In April 2024, Cobra Trading, Inc. was fined $200,000 for findings that it paid influencers for promotional communications on social media platforms while the communications were not fair and balanced or made claims that were promissory. Cobra Trading did not review or approve influencers’ videos prior to their publication and did not maintain records of influencers’ videos or the dates they were used, but also failed to establish and maintain a supervisory system…to supervise its influencers’ retail communications.
In June 2024, TradeZero America was fined $250,000 for findings that its influencer communications were not fair and balanced and included exaggerated and promissory statements. Amongst the findings that the broker-dealer did not reasonably supervise its retail communications posted by influencers for compliance with FINRA Rule 2210(d)(1), the firm did not establish or maintain a supervisory system…to preserve records of influencers’ videos or their dates of use.
RULE REQUIREMENTS
Communications must be “based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service.” Firms cannot “…omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.” [FINRA Rule 2210(d)(1)(A)]
Firms also cannot “…make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication.” Nor may firms “…publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.” [FINRA Rule 2210(d)(1)(B)]
Firms must “…ensure that statements are clear and not misleading within the context in which they are made, and that they provide balanced treatment of risks and potential benefits.” [FINRA Rule 2210(d)(1)(C)]
Firms must also “…consider the nature of the audience to which the communication will be directed and must provide details and explanations appropriate to the audience.” [FINRA Rule 2210(d)(1)(E)]
FINRA Regulatory Notices
Regulatory Notice 19-31
Disclosure Innovations in Advertising and Other Communications with the Public.
Regulatory Notice 17-18
Guidance on Social Networking Websites and Business Communications.
Regulatory Notice 15-17
Guidance on Rules Governing Communications with the Public.
Regulatory Notice 13-03
FINRA Provides Guidance on new rules governing Communications with the Public.
Solution
Knowtice Analytics’s Marketing Correspondence Review platform provides for a centralized place to both maintain the proposed and approved communication materials as well as track the entirety of the approval process, including the discussions between the parties that propose and approve the communication materials.
The platform contains within a single “card” each marketing material, its context, use and the discussions between the author of the marketing materials and the compliance officer. Each party is notified via email when the card is ready for their review within the platform.
All discussions on the communication within the platform are time-stamped and identify the person making the comment and/or change in the materials in furtherance of maintaining a log documenting the approval process. The home page of the platform relays the status of each communication discussion.
Upon the approval of the communication, the platform documents such basis and records the use of the approved materials and the date of such use. For any internal or regulatory inquiries, the platform provides an Export function which provides for a summary of the contents within a searchable timeframe.
To assist Compliance with the review of the actual content of the correspondence material, the Marketing Correspondence Review platform provides aggregated insights collected from FINRA Advertising Regulation Department’s actual comment letter to broker-dealers. The searchable tool outlines statements that were proposed to FINRA ADV, their comment on the issue(s) with such statement and the rule reference, if any. Knowtice Analytics provides such guidance on an anonymous basis from its broker-dealer clients and invites clients – through “crowdsourcing” – to participate in expanding the library of guidance.
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