Administrative Law Section of the American Bar Association Teleconference on Regulation of the Social Media
July 24, 2019
Editors Note: We appreciate the many requests we have received for additional information on the presentations made at this event but at this time we are not in a position to prepare an in-depth analysis of the statements made by the panelists. However we have summarized below a particular topic addressed by the panelists.
Background
Notwithstanding the many societal benefits accruing from the universal adoption of the social media there is an increasing public demand for addressing problems associated with its operation. The problems include promoting terrorist organizations and gang activities, interference in elections, cyber bulling, privacy concerns and alleged biases in search engines.
Nearly every major nation has plans to address some or all of the aforementioned problems related with the social media; notably absent from the debate is the US Government. This is not to suggest that certain agencies, most notably the SEC, FTC and DOJ, are not using their existing statutory authorities to the fullest but instead there is no comprehensive plan that cuts across the jurisdictions of all federal agencies.
On May 24, 2019 The Administrative Law Section of the American Bar Association sponsored an international teleconference on regulation of the social media.
The following were the panelists:
Orla MacRae, Deputy Director for Online Harms in the UK’s Government’s Department of Digital, Culture, Media and Sport, which recently published a White Paper setting out the UK’s proposed regulatory framework for online safety.
Connor Raso, Senior Counsel, Office of the General Counsel U. S. Securities and Exchange Commission.
David Shonka, former General Counsel of the FTC
Brad Wood, Senior Advisor, Innovation and Industrial Policy, Embassy of Canada
Jim Tozzi, Panel Organizer, Founder, Center for Regulatory Effectiveness, Washington, DC.
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Jim Tozzi asked the panel the following question:
A number of national governments have stated that regulation of the social media began with no-regulation, progressed to self-regulation and is now at the stage of national regulation.
My question is what are the merits of utilizing a legislatively sanctioned self-regulatory organization either as a complement to or a substitute for national regulation?
By a “legislatively sanctioned “self-regulatory organization” I mean an “organization authorized by statute or government agency to exercise control over a certain aspect of (an) industry”.
In the US an example of a “legislatively sanctioned self-regulatory organization”, is the Financial Industry Regulatory Authority, Inc. (“FINRA”), which, among its various programs, has implemented a program to regulate social media regarding the enforcement of US security laws.
It should be noted that:
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The FINRA Board of Governors consist of 24 individuals, 13 of which are public members not associated with a broker dealer.
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The SEC can recommend specific rules to be issued by FINRA
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The SEC must concur in rules issued by FINRA
Reaction
The sitting members of the panel were supportive of the contribution that a FINRA-type organization could make to the regulation of social media but each had varying ideas of where the emphasis should be placed in the regulatory regime.
Recommended Next Steps By The Moderator
There is no need to await the passage of additional legislative authority which could occur after voids in the program are identified subsequent to implementing the following game plan.
An existing agency or agencies, in consultation with FINRA, can begin to implement a social media regulatory program around the FINRA structure. More specifically:
- delineate areas of concern
- establish codes of conduct for each of the aforementioned areas of concern
- publish metrics to measure compliance with the codes of conduct
- design an enforcement program
- form a SRO dedicated to regulation of the social media
- have existing agencies delegate the relevant authorities to the SRO
- have the SRO and existing agencies design a rulemaking process for the SRO which gives agencies the right to recommend rules to the SRO and to veto rules proposed by the SRO
- solicit the input from the social media industry on the above components
- initiate implementation of the regulatory program for the social media
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Notes
Should the US wish to enter the foray it need not go through the growing pains witnessed by other countries to arrive with a workable program to regulate the social media. A federally sanctioned organization called FINRA provides a blueprint and a living prototype for the regulation of the social media.
FINRA, The Financial Industry Regulatory Authority, is a federally sanctioned SRO, self-regulatory organization. “ A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could exist in place of government regulation, or applied in addition to government regulation.”
“Since the SRO has some regulatory influence over an industry or profession, it can often serve as a watchdog to guard against fraud or unprofessional practices. The ability of [most but not all] SRO’s to exercise regulatory authority does not stem from a grant of power from the government.”
“Instead, SROs often accomplish control through internal mechanisms that regulate the flow of business operations. The authority may also come from an external agreement between like businesses. The purpose of these organizations is to govern from within while avoiding ties to a country’s governance.”
“In 1934 the Congress passed the Securities Exchange Act which created the Securities Exchange Commission (SEC).The Act gave the SEC the authority to regulate SRO’s dealing with the securities industry, including the New York Stock Exchange, NASDAQ Stock Market and the Chicago Board of Trade.”
“Four years later, in 1938 the Congress went a step further and passed the Maloney Act which allowed self-regulatory organizations to assist the SEC in the regulation of the OTC Market. The OTC Market, the-over the counter market, is “a decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked by telephones and computer screens. The market is for securities not listed on a stock or bond exchange.”
“The Maloney Act encourages what was essentially a public private partnership between the federal government and the financial industry. Currently only FINRA is registered as such an organization under the Maloney Act.”
FINRA already has a program in place to address social media concerns related to its statutory mandate:
FINRA’S REGULATION OF ITS MEMBERS’ USE OF SOCIAL MEDIA
Broker-dealers using social media for business purposes face new scrutiny from FINRA, which has issued two detailed Regulatory Notices and a new rule on electronic communications with the public. The authors discuss these FINRA initiatives, and make practical suggestions regarding the essential components of supervision, conflicts with state privacy laws, required recordkeeping, and responsibility for third-party content.
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