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

A compliance officer at a registered broker-dealer is reviewing client communication standards under SEC Regulation S-P and FINRA rules regarding account statement delivery and privacy protections. Match each customer relationship classification or account condition on the left with its corresponding regulatory delivery or privacy disclosure requirement on the right.

  • Casual consumer obtaining a one-time wire transfer quote without establishing an ongoing relationshipMust receive an initial privacy notice only if the firm intends to disclose nonpublic personal information to nonaffiliated third parties
  • Retail customer opening a new margin account to maintain an ongoing investment relationshipMust receive an initial privacy notice at or before account opening, followed by annual privacy disclosures (unless a statutory exception applies)
  • Customer account experiencing dividend reinvestments and option trades during the current monthMust be sent an account statement for the current month due to account activity
  • Inactive customer account holding fully-paid equity securities with no trading activity during the quarterMust be sent an account statement at least on a quarterly basis

Answer

Casual consumers require an initial privacy notice only if NPI is shared with nonaffiliated third parties; Retail customers with ongoing relationships must receive initial and annual privacy notices; Active accounts require monthly account statements; Inactive accounts holding positions require quarterly account statements.
Each relationship classification and account status is accurately paired with its regulatory requirement. Regulation S-P distinguishes between consumers (who receive initial notices only if NPI is shared with nonaffiliated third parties) and customers (who must receive initial and annual privacy notices). FINRA rules require monthly statements for accounts with activity during the month and at least quarterly statements for inactive accounts holding positions.

Step-by-Step Solution

1
Differentiate between a consumer and a customer under SEC Regulation S-P privacy disclosure rules.
A consumer without an ongoing relationship requires a privacy notice only prior to sharing nonpublic personal information with nonaffiliated third parties, whereas a customer with an ongoing account relationship requires an initial privacy notice at account establishment and ongoing annual notices.
Regulation S-P creates different notice obligations based on whether an ongoing financial relationship exists.
2
Apply FINRA rules governing customer account statement delivery frequencies based on account activity.
Accounts with activity in a given month must receive monthly account statements. Accounts that are inactive but hold cash or security balances must receive statements at least quarterly.
FINRA Rule 2231 specifies monthly statement delivery for active accounts and quarterly delivery for idle accounts carrying balances.

Key Concept

Regulation S-P privacy notice requirements and FINRA account statement delivery frequency rules
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Topics

Account Statements, Privacy Protection, and Regulation S-P