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Question

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

A retail investor opens a brokerage account online with a FINRA-member broker-dealer. During the account opening process, the firm provides its privacy notice under SEC Regulation S-P, disclosing that customer nonpublic personal information may be shared with non-affiliated financial institutions for joint marketing purposes. Which of the following opt-out methods provided by the firm meets the regulatory standard for a 'reasonable means' of opting out?

  1. Providing an electronic opt-out link on the firm's website and a toll-free telephone numberAnswer
  2. B
    Requiring the customer to write and mail a customized physical letter explaining their opt-out request
  3. C
    Mandating that the privacy notice be delivered only upon account closing rather than at account opening
  4. D
    Conditioning the opt-out on an in-person consultation with a designated compliance officer at a branch office

Answer

Providing an electronic opt-out link on the firm's website and a toll-free telephone number satisfies Regulation S-P requirements.
Under SEC Regulation S-P, financial institutions disclosing nonpublic personal information to non-affiliated third parties must provide customers with a reasonable means to opt out. Offering a toll-free telephone number or a simple electronic link/check-box on the firm's website fulfills this obligation without placing unreasonable burdens on the investor.

Step-by-Step Solution

1
Identify the governing rule and context
SEC Regulation S-P governs the privacy of consumer nonpublic personal information held by financial institutions.
Broker-dealers must provide customers with initial and annual privacy notices and a reasonable opportunity to opt out of sharing nonpublic personal information with non-affiliated third parties.
2
Evaluate the regulatory standard for 'reasonable means' of opting out
Acceptable opt-out mechanisms include toll-free telephone numbers, detachable response forms with prepaid postage, or simple electronic opt-out links/check-boxes on an online portal.
The rule explicitly forbids methods that place an undue burden on the customer, such as requiring a custom letter or in-person visits.

Key Concept

Regulation S-P Opt-Out Mechanisms
Estimated Time:1m 0s
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Topics

Account Statements, Privacy Protection, and Regulation S-P