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

A broker-dealer receives a formal request from a self-regulatory organization (SRO) conducting a routine compliance examination. The request requires the firm to submit account files and transaction records containing customer names, Social Security numbers, and asset balances. Under SEC Regulation S-P, which of the following statements correctly describes the firm's obligation regarding customer privacy and opt-out disclosures?

  1. The firm must comply with the examination request and may disclose the nonpublic personal information without providing customers an opportunity to opt out.Answer
  2. B
    The firm must delay providing the records until each affected customer is sent a special privacy notice and given at least 30 days to opt out.
  3. C
    The firm is strictly prohibited from releasing nonpublic personal information to any entity outside the broker-dealer under any circumstances.
  4. D
    The firm may release the records only if the SRO obtains written consent directly from each individual customer prior to document submission.

Answer

The broker-dealer must comply with the examination request and may disclose the nonpublic personal information without providing customers an opportunity to opt out.
Under SEC Regulation S-P, broker-dealers are required to protect customer nonpublic personal information (NPI) and provide customers with initial and annual privacy notices as well as a reasonable opportunity to opt out before sharing information with nonaffiliated third parties. However, Regulation S-P includes specific statutory exceptions where opt-out notices are not required. One major exception allows firms to disclose NPI to nonaffiliated third parties to comply with federal, state, or local laws, court orders, or regulatory investigations and examinations conducted by self-regulatory organizations (SROs) like FINRA.

Step-by-Step Solution

1
Identify the core regulatory rule and requested transaction.
The firm is asked to disclose customer nonpublic personal information (NPI) to a self-regulatory organization (SRO) for a routine compliance examination.
Determines whether the disclosure falls under general Regulation S-P privacy rules or specific statutory exceptions.
2
Evaluate Regulation S-P exceptions for disclosures to nonaffiliated third parties.
Regulation S-P provides standard exceptions for disclosures made to comply with law enforcement, judicial process, court orders, or SRO regulatory examinations.
Allows member firms to fulfill legal and regulatory duties without requiring customer opt-out notices or prior customer consent.

Key Concept

Regulation S-P Privacy Notice Exemptions for Regulatory and Compliance Disclosures
Estimated Time:1m 0s
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Topics

Account Statements, Privacy Protection, and Regulation S-P