Examkin

Question

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

An individual utilizes a registered broker-dealer strictly to execute a single wire transfer, establishing no ongoing account relationship with the firm. Two months later, the broker-dealer plans to disclose this individual's nonpublic personal information to a nonaffiliated marketing firm. Under SEC Regulation S-P, which of the following actions must the broker-dealer take before sharing the information?

  1. Deliver an initial privacy notice and provide a reasonable opportunity to opt out of the disclosure.Answer
  2. B
    Refrain from sharing the information, as Regulation S-P strictly prohibits all disclosures of consumer data to nonaffiliated third parties.
  3. C
    Provide an annual privacy notice to the individual for a minimum of one year following the transaction.
  4. D
    Share the information immediately, provided an opt-out form is mailed to the individual within 30 days post-disclosure.

Answer

The broker-dealer must deliver an initial privacy notice and provide a reasonable opportunity to opt out before disclosing the nonpublic personal information to the nonaffiliated third party.
Under SEC Regulation S-P, a consumer is an individual who obtains a financial product or service on a one-time basis. While firms are not required to give initial privacy notices to consumers with whom they have no ongoing customer relationship, they MUST provide an initial privacy notice and a reasonable opportunity to opt out BEFORE disclosing nonpublic personal information to nonaffiliated third parties.

Step-by-Step Solution

1
Identify the individual's regulatory classification under SEC Regulation S-P.
Because the individual only completed a isolated wire transfer, they are classified as a 'consumer' rather than a 'customer' with an ongoing relationship.
Regulation S-P distinguishes consumers (one-time or prospective service users) from customers (who maintain an ongoing relationship).
2
Determine the privacy notice requirements for consumers when sharing data with nonaffiliated third parties.
Firms are not required to provide an initial privacy notice to a consumer UNLESS the firm intends to disclose nonpublic personal information (NPI) to a nonaffiliated third party outside statutory exceptions.
If disclosure to a nonaffiliated third party is planned, Regulation S-P mandates providing an initial privacy notice and a reasonable opt-out opportunity prior to sharing.

Key Concept

Consumer vs. Customer Privacy Notice Requirements under Regulation S-P
Estimated Time:1m 30s
Rate this question

Topics

Account Statements, Privacy Protection, and Regulation S-P