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Question

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

An individual utilizes a broker-dealer's services solely to execute a one-time wire transfer and does not open an ongoing brokerage account or purchase any securities. Under SEC Regulation S-P, which of the following statements correctly describes the firm's obligation regarding the delivery of a privacy notice to this individual?

  1. The broker-dealer is required to deliver an initial privacy notice only if it plans to disclose the individual's nonpublic personal information to nonaffiliated third parties.Answer
  2. B
    The broker-dealer must deliver an initial privacy notice immediately upon transaction execution and continue delivering annual privacy notices indefinitely.
  3. C
    The broker-dealer must provide a privacy notice only after receiving a formal written opt-out request from the individual.
  4. D
    The broker-dealer is fully exempt from Regulation S-P rules because privacy notice requirements apply strictly to institutional accounts.

Answer

The broker-dealer is required to deliver an initial privacy notice only if it plans to disclose the individual's nonpublic personal information to nonaffiliated third parties.
Under SEC Regulation S-P, a 'consumer' is an individual who obtains a financial service on an isolated basis (such as a single wire transfer) without establishing an ongoing relationship. Broker-dealers are required to provide an initial privacy notice to a consumer only if the firm intends to share the consumer's nonpublic personal information with nonaffiliated third parties outside permissible statutory exceptions.

Step-by-Step Solution

1
Determine the individual's regulatory classification under Regulation S-P.
The individual is a 'consumer' because they conducted a isolated, one-time transaction (wire transfer) without establishing a continuing relationship.
Regulation S-P distinguishes between a 'consumer' (one-time or isolated transaction) and a 'customer' (ongoing financial relationship).
2
Apply Regulation S-P privacy notice rules for consumers.
Broker-dealers are not required to provide an initial privacy notice to a consumer unless the firm intends to disclose nonpublic personal information about that consumer to nonaffiliated third parties.
Initial privacy notices at account establishment and subsequent annual notices are strictly mandatory for 'customers', whereas 'consumers' only require notice prior to third-party information sharing.

Key Concept

Consumer vs. Customer Privacy Notice Requirements under Regulation S-P
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Topics

Account Statements, Privacy Protection, and Regulation S-P