Examkin

Question

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

A registered broker-dealer decides to change its information-sharing practices and plans to begin disclosing nonpublic personal information of its retail customers to nonaffiliated third-party marketing companies. Under SEC Regulation S-P, which of the following actions must the firm complete before disclosing this information?

  1. Provide an updated privacy notice describing the disclosure policy and grant customers a clear, reasonable opt-out opportunity prior to sharing the information.Answer
  2. B
    Obtain express written opt-in authorization signed by each customer prior to releasing any nonpublic personal financial data.
  3. C
    Deliver privacy notices only when an account is closed or liquidated, provided the customer was classified as an accredited investor at account opening.
  4. D
    File an exemption form with FINRA 30 days prior to sharing data, which automatically waives the requirement to notify individual retail customers.

Answer

The broker-dealer must provide an updated privacy notice explaining the policy and afford customers a reasonable opportunity and clear mechanism to opt out before sharing nonpublic personal information with nonaffiliated third parties.
Under SEC Regulation S-P, financial institutions such as broker-dealers must safeguard customer nonpublic personal information. If a firm intends to share this information with nonaffiliated third parties, it must provide customers with a privacy notice detailing its disclosure practices and give them a reasonable opportunity and practical means (e.g., toll-free number or electronic opt-out form) to opt out before the information is released.

Step-by-Step Solution

1
Identify the applicable regulatory standard for sharing nonpublic personal information under SEC Regulation S-P.
Regulation S-P governs consumer privacy and protection of nonpublic personal financial information held by financial institutions, including broker-dealers.
Broker-dealers intending to disclose customer information to nonaffiliated third parties must follow specific notice and opt-out rules.
2
Determine the required disclosure mechanism and customer rights regarding nonaffiliated third-party sharing.
The firm must provide an initial or revised privacy notice and afford customers a reasonable method and time frame to opt out of the sharing arrangement.
Reg S-P relies on an opt-out standard (allowing customers to direct the firm not to share data) rather than requiring prior affirmative opt-in consent.

Key Concept

Regulation S-P Privacy Notice and Opt-Out Requirements
Estimated Time:1m 0s
Rate this question

Topics

Account Statements, Privacy Protection, and Regulation S-P