By Ethan Corey, Practus Partner & Attorney
On September 19, 2019, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-31 – Disclosure Innovations in Advertising and Other Communications with the Public (RN 19-31). RN 19-31 supplements past FINRA guidance on the application of the communications rules to social media and electronic communications. It responds to questions that FINRA has received from members about how they can comply with FINRA rules when communicating with customers—particularly when using websites, email and other electronic media—while ensuring fair and balanced presentations. FINRA states in RN 19-31 that it seeks to cooperate with members to improve the effectiveness of disclosure and is interested in ways that members can make communications more interesting and informative.
Innovative Design Techniques
FINRA encouraged members to use innovative design techniques. RN 19-31 stated that “[m]embers may use technology to customize the level of explanation and information provided in communications.” FINRA noted that a mobile app may provide the user with the ability to choose whether to view an item of information each time it visits the app or to bypass that item on subsequent visits.
FINRA also acknowledged that members may design communications so that users may tailor the manner in which they obtain information. It noted that some communications give the user the option to view information in narrative or tabular format while other communications are made available through video, audio or transcript. FINRA also encouraged non-verbal techniques, such as icons, illustrations, cartoons, animations, short videos, pictograms, chime notifications, vibration notifications and other media or emerging technologies to alert investors about important information.
Streamlining Disclosures in Marketing Materials
FINRA noted that its rules do not mandate many disclosures that currently appear in marketing materials. It reminded members that disclosures not required for rule compliance should not inhibit an investor’s understanding of the required information. FINRA encouraged members to consider how to utilize electronic media and design innovations in order to present disclosures not required by FINRA rules, such as disclaimers related to business relationships or disclosure about intellectual property, without detracting from FINRA-required disclosures.
Disclosure of Risks in Communications Not Discussing Rewards Related to those Risks
RN 19-31 reminded FINRA members that they do not need to disclose each possible risk and warning relevant to a product or service. FINRA encouraged members to tie risks, costs or drawbacks disclosed to the benefits promoted in the communication.
Disclosures Integrated into a Body of a Marketing Message or Other Communication
RN 19-31 noted that a risk communication integrated into the body of a marketing message may be shorter than a comparable disclosure relegated to footnotes or bundled with other risk disclosures. FINRA encouraged members to consider whether information traditionally relegated to footnotes, hedge clauses or disclaimers can instead be integrated into the body of a marketing message.
Disclosures for Educational Materials, Reference Resources or Other Non-Promotional Communications
Communications Requiring Little or No Additional Disclosures
- Brand communications: Brand communications that only acquaint investors with a firm’s name and the fact that it offers financial services.
- Reference resources: Websites, apps or other reference resources that provide information generally intended to assist investors with investment decisions and not “pushed” to investors.
Communications Requiring Limited Additional Disclosures
- Educational communications: Communications that promote financial literacy, such as a website that explains different types of securities and how markets work, but does not promote specific securities or services may require only a simple statement noting that securities involve risks and an offer to provide additional information.
- Post-sale communications: Communications to investors that discuss the product purchased by the investor, such as changes to the product’s portfolio or information about how the product has responded to changes in market conditions typically do not require the same extent of disclosure as pre-sale communications.
Conclusion
While RN 19-31 on its face is focused on electronic communications with consumers, much of its guidance applies with equal force to traditional paper-based communications. To be sure, portions of RN 19-31 apply solely to electronic communications – in particular, guidance regarding the design and features of mobile apps, as well as non-verbal communication techniques. However, suggestions regarding the presentation and content of required disclosures and guidance regarding the content of risk disclosures in particular types of communications apply to all types of communications, regardless of the media used.
