NEWPORT BEACH, Calif. — A proposed change from the SEC regarding the Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Personal Information may have an impact on investment representatives' relationships with members, the National Association of Credit Union Service Organizations has discovered.
The SEC's proposed amendments would set forth more specific requirements for safeguarding information and responding to information security breaches. Under SEC's recommendations, the agency would permit a limited transfer of information to a nonaffiliated third party without the required notice and opt out when personnel move from one broker-dealer or registered investment adviser to another. The amendments would also broaden the scope of the information covered by Regulation S-P's safeguarding and disposal provisions extending them to natural persons associated with brokers, dealers and transfer agents registered with the commission.
Guy Messick, general counsel for NACUSO, said page 40 of the proposal describes the protocol when a registered representative leaves one brokerage firm for another. The bulk of a representative's business is referred to them by the bank and credit union and such information is often treated as trade secrets with the representative acknowledging that the representative does not own the book of business, he said.
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"Relying upon a theory that the investor deserves to know where the investor's representative has relocated if the investor wants to stay with the representative, the proposal would permit the new broker-dealer to have the investor's name, a general description of the type of account and products held by the investor and contact information, including address, telephone number and e-mail information," Messick said in a May 6 regulatory alert.
"We would not want to see the permissive sharing of information to be considered a legal defense for taking trade secrets," he added.
NACUSO intends to comment that it is fine to permit this limited disclosure for the purpose of implementing the agreed protocols between broker-dealers but the permissive sharing of information between consenting parties does not supersede the right of other parties to prevent the sharing of information that the parties agree is trade secrets or is otherwise deemed such by applicable law, Messick said.
"For example, banks and credit unions supply the representatives in their networking arrangements with customer and member lists and referrals," he explained. "The representative often has signed a contractual acknowledgement that the customer and member referrals are trade secrets, the representative does not own the book of business and the representative may not solicit the customers after [he or she] is no longer affiliated with the broker-dealer in the bank or credit union's networking arrangement."
Messick said recognizing that an investor may want to follow a representative, NACUSO would not object to a requirement that the bank, credit union or newly affiliated broker-dealer would have to provide the representative's contact information upon request by the investor, provided the representative has supplied their contact information.
"In this manner, the investor's interests and the interests of the bank and credit union will be protected," Messick said.
The deadline to submit comments to SEC on the proposed amendments was May 12. The SEC's proposal can be found at the following link http://www.sec.gov/rules/proposed/2008/34-57427.pdf.
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