BD’S TRANSITION TEAM VIOLATED PRIVACY RULES BY OBTAINING CUSTOMER INFORMATION
An SEC Administrative Law Judge has found a broker-dealer liable for violating Regulation S-P in connection with its rep transition program. The BD’s transition team pre-populated customer account documents using customer information without obtaining the customer’s consent or offering the opportunity to opt-out. The customer information included personally identifiable financial information including account information, balances, and social security numbers. The transition team advised transitioning reps how to use their firms’ computer systems to access and obtain customer information. Rejecting the BD’s argument that the client moved with the rep, the ALJ stated that the client is a customer of the brokerage firm, not the rep, and that the rep “has no property right to a customer’s nonpublic personal information.”
OUR TAKE: Nonpublic personal information belongs to the client. Any disclosure to a third party would violate Regulation S-P. Even if a rep or a BD believes that it is helping the client by avoiding the paperwork, the client must be given notice and opportunity to opt out of sharing nonpublic personal information.