Final Red Flags Rules Adopted By SEC And CFTC

by Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact

Today the CFTC and the SEC jointly issued final rules that require regulated entities to adopt programs designed to prevent identity theft – so-called “red flags” rules.

Since 2003, the Fair Credit Reporting Act has authorized federal agencies responsible for banking regulations to implement programs to prevent identity theft and the FTC has been authorized to implement and enforce similar programs for entities regulated by the SEC and the CFTC.  With respect to SEC- and CFTC-regulated entities, the Dodd-Frank Act transferred the rule-making authority and enforcement responsibility for the red flags rules from the FTC to SEC and CFTC, respectively.

These rules should not be surprising to anyone, as they are nearly identical to the rules that had already been adopted by other federal agencies under the FCRA back in 2007.  Although the rules adopted by the SEC and CFTC do not expand the scope of the red flags rules that were already in place, the adopting release does contain “examples and minor language changes designed to help guide entities within the SEC’s enforcement authority in complying with the rules, which may lead some entities that had not previously complied with the Agencies’ rules to determine that they fall within the scope of the rules we are adopting today.”

On the SEC side of things, the red flags rules apply to entities that are regulated by the SEC and fall within the definition of “creditor” or “financial institution” under the FCRA.  To qualify as a “financial institution,” generally speaking an entity must hold a transaction account belonging to an individual.  The somewhat convoluted definition of “creditor” for purposes of the FCRA is a person that regularly extends, renews or continues credit, or makes those arrangements and “regularly and in the course of business … advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person.”  The most common types of SEC-regulated entities likely to fall subject to the red flags rules are broker-dealers holding custodial accounts, investment advisers that hold transaction accounts and are permitted to make payments to third parties out of those accounts, and registered investment companies that allow investors to make wire transfers to other parties or that offer check-writing privileges.

On the CFTC side, the red flags rules apply to entities that re regulated by the CFTC and fall within the definition of “creditor” or “financial institution” under the FCRA, provided that those terms also include any futures commission merchant, retail foreign exchange dealer, commodity trading advisor, commodity pool operator, introducing broker, swap dealer, major swap participant, or any of the foregoing that are regularly involved in the extension, renewal, or continuance of credit.

The final rules require that entities subject to the rules adopt programs to deter identify theft and  offer guidelines for such programs that should be considered by the entities as they formulate their own programs.  The SEC press release accompanying the final rules nicely summarizes the substance of the red flags rules:

“The program should include policies and procedures designed to:

  • Identify relevant types of identity theft red flags.
  • Detect the occurrence of those red flags.
  • Respond appropriately to the detected red flags.
  • Periodically update the identity theft program.

The SEC’s rules apply only to SEC-regulated entities that meet the definition of ‘financial institution’ or ‘creditor’ under the FCRA.

The rules require entities to provide such things as staff training and oversight of service providers. The rules include guidelines and examples of red flags to help firms administer their programs.

The rules require entities that issue debit cards or credit cards to take certain precautionary actions when they receive a request for a new card soon after they receive a notification of a change of address for a consumer’s account.”

Check dodd-frank.com frequently for updated information on the Dodd-Frank Act, the JOBS Act, and other important matters regarding regulation of derivatives and securities.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Dodd-Frank and the Jobs Act | Attorney Advertising

Written by:

Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact
more
less

Stinson Leonard Street - Dodd-Frank and the Jobs Act on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!