Series 27: Privacy Of Consumer Financial Information

Privacy of Consumer Financial Information

The SEC’s Privacy of Consumer Financial Information rules—more commonly known as Regulation S-P—limit the ability of broker-dealers, investment companies, and investment advisers to disclose “nonpublic personal information” about their customers with “non-affiliated third parties.”

Under Regulation S-P, registered broker-dealers, investment companies, and investment advisers must provide their customers with a privacy notice when an account is opened and then on an annual basis. The privacy notice must describe the type of information that will be collected, how it will be used, and with whom it will be shared. Customers and consumers must also be provided with an easy way to opt out of information sharing with other parties. In the context of Regulation S-P, “opting out” means being able to say no to the sharing of the consumer’s personal information. Regulation S-P includes the following specific rules:

• • A “customer” is an individual who has a continuing relationship with a financial institution and a “consumer” is an individual who does not have a continuing relationship with the financial institution. An application or a request for information about a financial product or service is covered under Regulation S-P, and if an application is denied or a request for information is withdrawn, a person is still considered to be a consumer.
• • Examples of a customer relationship:
  • » Effects a securities transaction or opens a brokerage account
  • » Opens a brokerage account with an introducing broker or dealer that clears transactions with and for its customers on a fully disclosed basis
  • » Enters into an advisory contract (oral or written)
  • » Purchases shares from an investment company
• • A financial institution must provide a customer with an initial and annual notice of its privacy policies and pra