Media Liability Risks for Financial Advisors

Transcription

1 Aon Risk Solutions Media Liability Risks for Financial Advisors January 2015 Risk. Reinsurance. Human Resources.

2 Introduction In an effort to keep up in the age of Facebook and Twitter, an increasing number of financial advisors are taking advantage of the ease of social media to advertise, communicate with clients and facilitate running their business. However, many advisors are unclear on exactly what content they should be posting and the use of evolving technologies and methods for engaging clients may expose them to new risks, as well as exacerbate existing ones. The use of social media amplifies information technology and security risks with added potential for exposure to viruses, malware, a privacy breach or the download of unauthorized applications. In addition, the use of social media may create brand, reputational, regulatory and civil litigation risks for financial advisors. This calls for increased diligence with respect to protecting against the loss of intellectual property, the contravention of regulatory requirements and inappropriate disclosures. Once information has been sent out into the digital world via a tweet, post, or other electronic platform, it is very difficult to take it back. Therefore, it is prudent business practice for financial advisors using social media to implement risk management strategies and limit their exposure to liability. This may be done to some extent through the purchase of insurance. However, commercial general liability and professional liability insurance policies will not provide sufficient coverage to address advisors risks associated with the use of social media. The most robust coverage available for these risks is contained in media liability and cyber and privacy liability policies.

3 Potential for civil claims When using social media in the course of their business, advisors must be aware of the potential for a number of civil liabilities that might arise. The informal nature of the communication that takes place on social media platforms, combined with their broad reach, creates expanded potential for claims of defamation, or another tort related to the harm of an individual or organization s character (i.e. libel, slander, product disparagement). It is not difficult for a person claiming defamation to establish the liability of the defendant; they need only show that the defendant published a statement concerning the plaintiff that, in a literal or implicit manner, has the potential to damage the reputation of the individual or the business. A defendant may offer a bona fide defence (i.e. truth, opinion, qualified privilege or responsible communication on matters of public interest), but the defendant s intention in publishing the statement is largely irrelevant. Additional civil liabilities may arise where advisors use social media to advertise to clients, solicit inquiries with respect to new products and generally communicate investment information, as there is a risk that investors may rely on the information provided to make investment decisions in a way that was never intended. Social media s broad reach may also result in the distribution of investment information posted by an advisor to an unintended audience. If investors suffer a loss as a result, the advisor may face a claim for negligent misrepresentation, which, even if baseless, will likely lead to substantial legal costs to resolve. Finally, the use of social media may expose advisors to claims of plagiarism, infringement of copyright, passing-off or misappropriation of ideas when using the publications of others. Reputational and privacy risks The use of social media also exposes advisors to new privacy and transparency issues that do not exist to the same extent with traditional forms of communication. Privacy liability may arise if a customer s personal information is released via social media. This may occur by way of an inadvertent post or as a result of a social media platform being inappropriately accessed or infected by a virus or malware. Communication with clients via social media rather than face-to-face also has the potential to result in a violation of a client s privacy. When operating a social media platform, there is a risk that third party comments or content posted on an advisor s social media site will be attributed to the advisor. As well, re-tweeting or liking third party posts may be seen as an endorsement of their content. In addition to the civil liabilities discussed above, advisors run the risk of damaging their reputation where these posts or comments are incorrect or inappropriate. Legal and regulatory compliance risks Another consideration for financial advisors making use of social media is ensuring compliance with regulatory and legislative requirements. In the U.S., the Financial Industry Regulatory Authority (FINRA) and the Federal Financial Institutions Examination Council (FFIEC) have released guidelines on the use of social media and risk management. In addition, FINRA is starting to monitor advisors and brokerage firms use of social media and is conducting spot checks in an effort to cut down on social media misuse. In Canada, regulators are following suit and in 2011 the Investment Industry Regulatory Organization of Canada (IIROC) also issued a Rules Notice and Guidelines Note regarding the use of social media. The guidelines note that regardless of the method of communication that takes place, and however various social media platforms evolve, members must observe compliance with regulatory requirements and securities legislation. IIROC s guidelines remind members of their recordkeeping responsibilities, which require the retention of records of their transaction related communication with clients. Advisors must be careful that any recommendation delivered via a social media platform still complies with the suitability requirements established by IIROC, and be aware that static content such as electronic profiles, blog posts or website information will likely require pre-approval. The increasingly dynamic and casual nature of social media communication adds a new element of difficulty to compliance with these regulatory and other legal requirements. 1 Media Liability Risks for Financial Advisors

4 Canada s new anti-spam legislation On July 1, 2014, Canada s new Anti-Spam Legislation (CASL) will come into force. This legislation will impact financial advisors and their firms with the establishment of a basic prohibition against sending commercial electronic messages (CEMs) without consent from the recipient, or the message falling into certain limited exceptions. 1 Consent will be required for CEMs with the exception of: CEMs sent between family and friends (related through marriage, common law or any legal parentchild relationship, or if there is a voluntary twoway communication between the individuals) CEMs sent within or between organizations with an existing relationship CEMs solicited or sent in response to complaints, inquiries, requests CEMs sent due to a legal obligation or to enforce a right Among other penalties, violations of CASL may result in monetary fines up to $1 million for individuals and $10 million for corporations. In addition, on July 1, 2017, provisions of the legislation will come into force, which will permit individuals to bring a private action for contravention of act. Advisors should take steps to review existing electronic communication practices and ensure that they are brought into compliance with CASL. Where possible, explicit consent should be sought from the advisor s contacts with respect to continuing receipt of any newsletters, blog or website alerts, or other subscriptions to informational communications from the advisor. Examples of media liability cases The following are examples of recent legal proceedings that illustrate the potential for liability resulting from the use of social media: In 2010, a licensed representative of a real estate brokerage in British Columbia faced disciplinary proceedings and was subject to a fine for permitting the publication of misleading advertising on websites under his control. The defendant failed to identify unlicensed assistants, instead listing them generically as team members, and did not ensure that the team name and licensee name of the brokerage was shown on all online advertising. 2 In a recent Canadian action, a large public company launched a claim of defamation against an investment website for publishing defamatory articles about the company. The website was used by many investors as an informational resource and was known for publishing articles from high profile authors that were portrayed as financial and/or investment experts. The website permitted articles to be published by a third party alleging that the public company was experiencing a number of issues, including executive corruption. These problems within the company did not exist and it was suspected that this was an attempt to lower the price of the company stock so the author could benefit from a short sale. A settlement of the lawsuit was ultimately reached before it made its way to the courts. In 2011, the British Columbia Supreme Court held an individual liable for defamation where he posted untrue statements about a mining company in an online forum on an investment website. The individual posted under a pseudonym and alleged that the mining corporation was providing investors with misleading information and was engaging in fraudulent activities. The court awarded general damages of $40,000. The court found that the defendant had an improper motive for publishing the postings on a website intended for the investing community. 3 In this case, the owner of the website was not named as a defendant. This is likely due to the lack of a connection between the website and the individual responsible for the post, as well as the plaintiff s need of an ally in the website owner to remove the posts and discover the real identity of the responsible individual. However, in a similar scenario involving an investment company and its employee, the employer may also be named as a defendant and face a direct claim for negligent supervision. It is not uncommon for plaintiffs to name a company as an additional defendant in an action against one of its employees, as a corporation will often have a greater ability to pay any damages awarded against it. 2 Media Liability Risks for Financial Advisors

5 Recommendations for media liability risk management Advisors conveying information to clients over social media should take steps to ensure that their sources are reliable, the information being conveyed is correct and that appropriate caveats and/or disclaimers are included. Social media platforms should be monitored regularly and policies and procedures should be established to control the content that is posted. Implementing appropriate security measures such as encryption software and limiting access to information are also crucial to preventing an electronic privacy breach. It is also in an advisor s interest to transfer risk exposure as much as possible through the purchase of insurance coverage. Commercial general liability and professional liability policies will not provide sufficient coverage to address advisors risks associated with the use of social media. The most robust coverage available for these risks is provided by way of media liability policy and cyber and privacy liability policies. A media liability policy is specifically designed to protect individuals or businesses and their employees against claims arising out of communication of information and includes coverage for many of the risks discussed in this paper, including coverage for claims arising out of: Defamation or other tort related to disparagement or harm to the character, reputation or feelings of a person or organization Invasion, infringement or interference with rights of privacy or publicity, including public disclosure of private facts Infringement of copyright, passing-off, plagiarism, piracy or misappropriation of ideas A negligent act, error, omission, misstatement, misleading statement or misrepresentation in communicative or informational content by or with permission of the insured Negligent transmission of computer virus or malicious code A cyber and privacy liability policy is recommended for the most fulsome coverage available to protect against privacy and data breaches that may occur as a result of the use of social media. Providing information online, establishing a social media presence and inviting clients to visit various websites or social media platforms, increases the risk of issues arising from viruses and malware resulting in the potential compromise of the personal information of clients or sensitive corporate information. This policy includes coverage for claims arising out of: A cyber-attack resulting in the transmission of fraudulent or unauthorized data that is designed to modify, alter, damage, destroy, delete, record or transmit information within a computer system without authorization Where a person fraudulently accesses the insured s computer system Where a person exceeds their authorized access with respect to the insured s computer system To date, insurance coverage for claims arising from the distribution of unsolicited communications is limited and fines and penalties will not be covered by a media liability policy. Therefore, it is highly recommended that advisors ensure that they are diligent in taking steps to ensure compliance with CASL. NOTES: 1. Where a blog or a post to a social media site is not sent directly to an electronic address, this type of communication is not intended to be captured by the new legislation. 2. Morrison (Re), 2010 CanLII (BC REC) 3. Farallon Mining Ltd. v. Arnold, 2011 BCSC 1532 (CanLII). 3 Media Liability Risks for Financial Advisors

6 Prepared by Jerusha Figlarz Broker, Contacts National Brad R. Lorimer National Director t brad.lorimer@aon.ca Marie-Frédérique Senécal National Broking Manager t marie-frederique.senecal@aon.ca Regional Vancouver Catherine Richmond, LL. B., CRM Regional Manager t catherine.richmond@aon.ca Calgary Desiree Money, CAAC, CRM Vice President and Manager t desiree.money@aon.ca Montréal Catherine Lanctot, B.A. Vice-President, Team leader Financial Service Group t catherine.lanctot@aon.ca Toronto Jerusha Figlarz, B.Sc., CRM Broker t jerusha.figlarz@aon.ca Denise Hall Ontario Manager t denise.hall@aon.ca Aon Risk Solutions/ Media Liability Risks for Financial Advisors 4

7 About Aon Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/ manchesterunited to learn about Aon s global partnership with Manchester United. Aon Reed Stenhouse All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Risk. Reinsurance. Human Resources.