Regulation S-P Overview

December 21, 2023

Source: Privacy of Consumer Financial Information (Regulation S-P) 

Background Information: 

Regulation S-P, also known as the “Privacy of Consumer Financial Information Rule,” is a pivotal component of financial regulation in the United States. It was established under the Gramm-Leach-Bliley Act of 1999 and plays a significant role in protecting the privacy and security of consumers’ personal financial information held by financial institutions.  

Regulation S-P became effective on November 13th, 2000, and requires financial institutions to provide notice to customers regarding the financial institution’s privacy policies; the condition under which they may disclose nonpublic personal information about consumers to nonaffiliated third parties; and provide an “opt out” method for consumers to prevent the financial institution from disclosing information.  

Scope & Essential Aspects of Regulation S-P: 

1. Scope1 and Application: Regulation S-P applies to various financial entities, including banks, broker-dealers, investment advisers, and insurance companies that collect and maintain nonpublic personal information (“NPI”) of consumers. 
2. Definition of NPI: NPI encompasses information provided by customers to financial institutions, such as social security numbers, account details, income, and transaction history. It is essential to differentiate NPI from publicly available information, as only the former is subject to Regulation S-P. 
3. Privacy Notifications: Financial institutions must provide initial and yearly privacy notifications to customers. These notices must clearly outline the institution’s information-sharing practices and policies. Furthermore, they should inform customers about their rights to opt out of specific information-sharing practices. 
4. Opt-Out Provisions: Regulation S-P affords consumers the right to opt out of having their NPI shared with non-affiliated third parties. Financial institutions are obliged to provide a straightforward mechanism for customers to exercise this choice, such as a toll-free phone number. 
5. Security Requirements: Financial institutions must establish and maintain comprehensive information security programs. These programs should encompass risk assessments, security policies, employee training, and ongoing monitoring to safeguard NPI from unauthorized access or disclosure. 
6. Contractual Agreements: When sharing NPI with non-affiliated third parties, financial institutions must engage in agreements that mandate these parties to protect the information and use it exclusively for the intended purpose. 
7. Penalties for Non-Compliance: Non-compliance with Regulation S-P can result in severe consequences, including fines, damage to reputation, and the possibility of regulatory enforcement actions or legal liabilities. 
8. Recordkeeping: Financial institutions must retain records of their compliance efforts, which may include privacy policies, notices, and opt-out requests, for a designated period. Financial institutions must also note any updates to privacy policies and notices.  

On March 15th, 2023, the SEC proposed amendments to Regulation S-P. The proposed amendments would result in multiple changes to the current Regulation S-P, and “covered institutions” would be required to: 

1. Adopted a written Incident Response Plan 
2. Provide notice of breach  

On December 6th, 2023, the SEC issued an updated regulatory agenda that includes a target date of April 2024 for finalizing the proposed amendments. Regulation S-P is a vital regulatory framework designed to uphold the privacy of consumers’ financial information. Financial institutions subject to this regulation must be vigilant in their efforts to protect customer data, provide transparent privacy notices, and ensure adherence to its various provisions. Compliance not only fosters trust with customers but also mitigates the legal and regulatory risks associated with mishandling NPI.