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Question

Difficulty: MediumAccount Statements, Privacy Protection, and Regulation S-P

An individual submits personal financial details through a registered broker-dealer's online portal to obtain an investment product quote, but does not open an account or complete any transactions. The firm plans to share this individual's nonpublic personal information with a nonaffiliated third-party marketing partner. Under SEC Regulation S-P, which action must the broker-dealer take before disclosing the information?

  1. Provide an initial privacy notice and a reasonable opportunity to opt out of the disclosureAnswer
  2. B
    Defer delivery of privacy disclosures until an account is formally opened or closed
  3. C
    Issue a quarterly account statement reflecting the third-party data disclosure
  4. D
    Obtain prior written approval from FINRA and the SEC before transferring the records

Answer

The broker-dealer must provide an initial privacy notice and a reasonable opportunity to opt out before disclosing the consumer's nonpublic personal information to a nonaffiliated third party.
Under SEC Regulation S-P, an individual who provides nonpublic personal information to obtain a product quote without opening an account is defined as a consumer. A broker-dealer may not share a consumer's nonpublic personal information with a nonaffiliated third party unless it first provides an initial privacy notice and a reasonable opportunity to opt out of the sharing.

Step-by-Step Solution

1
Determine the status of the individual under Regulation S-P.
The individual is classified as a consumer because they obtained a financial service quote without establishing an ongoing customer relationship.
SEC Regulation S-P distinguishes between a consumer (one-time or prospective service) and a customer (ongoing relationship).
2
Apply the privacy notice and opt-out rules for consumers.
Before sharing a consumer's nonpublic personal information with a nonaffiliated third party, the broker-dealer must provide an initial privacy notice and a reasonable opportunity to opt out.
Consumers do not require annual privacy notices, but must be given notice and an opt-out opportunity if their information is shared outside affiliated entities.

Key Concept

Consumer vs. Customer privacy notice and opt-out requirements under SEC Regulation S-P
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Topics

Account Statements, Privacy Protection, and Regulation S-P