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

A compliance officer at a registered broker-dealer is evaluating the firm's procedures for privacy disclosures under SEC Regulation S-P and customer account statement delivery under FINRA rules. Which of the following statements correctly state regulatory requirements governing these communications? (Select all that apply.)

  1. An individual who opens a retail brokerage account is classified as a customer and must receive an initial privacy notice at or before establishing the account relationship, followed by annual privacy notices for the duration of the relationship.Answer
  2. B
    An individual who uses the firm's wire transfer service on a one-time basis without opening an account must receive an annual privacy notice every year for as long as transaction records are retained.
  3. A broker-dealer provides an acceptable opt-out mechanism under Regulation S-P when it allows clients to opt out of information sharing with nonaffiliated third parties via a toll-free telephone number or a simple electronic form.Answer
  4. D
    Account statements must be delivered to customers on a monthly basis for every open account, regardless of whether any trading or cash activity occurred during the statement period.

Answer

The correct statements are that establishing an ongoing customer relationship requires delivering an initial privacy notice at or before account opening alongside annual notices thereafter, and that providing a toll-free number or electronic form constitutes an acceptable opt-out mechanism under Regulation S-P.
Under SEC Regulation S-P, establishing a brokerage account creates an ongoing customer relationship, requiring an initial privacy notice at or before account opening and annual privacy notices thereafter. Additionally, firms must offer reasonable opt-out channels such as toll-free phone calls or online forms to allow clients to prevent disclosure of nonpublic personal information to nonaffiliated third parties.

Step-by-Step Solution

1
Analyze customer vs. consumer classifications under Regulation S-P.
Opening an account establishes an ongoing customer relationship requiring initial and annual privacy disclosures. A isolated wire transfer represents a consumer relationship, requiring an initial notice only if nonpublic personal information is shared with nonaffiliated third parties, and never annual notices.
Reg S-P distinguishes between one-time consumers and ongoing account customers.
2
Evaluate the opt-out mechanism requirements under Regulation S-P.
Providing electronic opt-out check-boxes or toll-free numbers satisfies the regulatory mandate for reasonable opt-out methods.
Opt-out methods must be convenient and accessible; requiring custom written letters is deemed unreasonable.
3
Review FINRA account statement delivery frequency rules.
Inactive accounts require quarterly statements, while monthly statements are mandated only during months with account activity or when penny stock positions are present.
Account statement frequency depends on trading and funds activity levels.

Key Concept

Regulation S-P Privacy Notice Obligations and Account Statement Delivery Frequencies
Estimated Time:2m 0s
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Topics

Account Statements, Privacy Protection, and Regulation S-P