We saw several enforcements in the third quarter of 2024 as both the SEC and FINRA continued their focus on protecting investors. We have seen enforcements in the Marketing Rule and Finfluence arenas.
SEC Marketing Rule enforcements
The most recent enforcement was on September 9th with charges against nine registered investment advisers for violating the Marketing Rule. Firms were charged with disseminating advertisements that included untrue or unsubstantiated statements of material fact, testimonials, or endorsements, or third-party ratings that lacked required disclosures. All nine firms have agreed to settle the SEC’s charges and to pay $1,240,000 in combined civil penalties. This batch of enforcements highlighted the SEC’s focus on investment advisor marketing and advertising content.
These enforcements serve as a wake-up call for firms to pay special attention concerning disclosures and unsubstantiated statements. With the increased use of generative AI to create content, firms should quality check the output and review wholistically for compliance with all regulations.
A focus on Finfluencers
Social media dominates the marketing landscape in retail consumer marketing, and it is now also becoming more influential in the financial space with celebrities acting as financial experts.
FINRA’s finfluencer sweep sought information related to social media influencers, referral programs, and information relating to compliance with SEC Regulation S-P, governing the privacy of consumer financial information. This included written supervisory procedures, privacy notices, and opt-out notices.
As part of the sweep, FINRA reviewed 1,000 social media communications. An overwhelming 70 percent of them were non-compliant in some substantive way. To summarize, 55 percent failed to disclose that the communication was a paid advertisement. Thirty-eight percent failed to disclose program or product risks, including about margin, securities lending, crypto, and options and 30 percent contained promissory, unwarranted, misleading, or exaggerated statements and claims. Recent enforcement actions also echoed this in terms of social media posts that were not complying with 2210 and 2010 which requires content to be not promissory and fair and balanced.
Ebook download → Navigating regulatory compliance: Three questions to help you get on the right path
The Securities and Exchange Commission charged a popular gambling site with selectively disclosing material, nonpublic information to investors who followed or otherwise viewed the company CEO’s social media accounts without disclosing that same information to all investors. This was a violation of Regulation Fair Disclosure (FD) resulting in a civil penalty to settle the SEC’s charges.
Q3 2024 regulatory recap
In summary, both the SEC and FINRA are highly focused on the widened scope and impact of marketing. As a result of this increased attention and compliance requirements, firms need to make sure they have a reasonable supervisory system in place to ensure they’re reviewing and capturing these communications, and that the material being used meets applicable content standards. Recent enforcements have highlighted examples that can serve as a caution to firms on how critical it is to comply with regulations. As we wind down 2024, more of these enforcements could continue in the future.
To help make marketing compliance easier, we put together an ebook which provides an overview of the top three questions you should ask yourself and your team before creating marketing communications—and why you should ask them. Download now to learn more.
The opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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