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Inside . . . MGL Providing Insurance Licensing and Appointment Services
A result of the services MGL has provided s Appointments/terminations
NASD Conference ... 4
over the years to insurance affiliated bro-
s License renewals
ker/dealers was the decision to add
Written Supervisory
insurance licensing and appointment ser- s Clearance/Certification letters
Procedures .............. 5
vices for our customers to better serve
s Continuing Education Classes
their needs. If your firm currently markets
OATS Reporting
Requirements .......... 5
insurance products including Life, Health, or s Tracking and monitoring of licenses,
Variable Annuities, MGL can assist with your appointments and CE
agents licensing and appointment needs. It
Investment Adviser s Assistance with address/names changes
Registration is no longer necessary for your firm to keep
Depository .............. 5 up with all the state insurance licensing re- MGL has on-line resources to assist with
quirements and forms; MGL will handle these functions, experienced staff to handle
Change of Designated these functions for you. the process and tracking capabilities to as-
Accountant .............. 6 sure your firm and agents are properly
Insurance Licensing and Appointments ser-
vices MGL can provide for your firm include insurance license and appointed and com-
NASD/CRD pliant with the state insurance regulations.
but are not limited to:
Renewals ................. 6
s Pre-licensing training and exam
If you would like more information on the
Pre-Hire Authorization information
Licensing and Appointment services, please
and Review of s Initial resident agent and firm licenses contact Gail Arcieri at (281) 367–0380 or
Agent Records ......... 6
s Non-resident licenses GArcieri@MGLConsulting.com.
Coordinating
Insurance CE With
Firm Element CE .... 6 Another Notice to Give Consumers
by Charles W. Lutter, Jr. September 18, 2000
Notes for CE ........... 7
Introduction Two Basic Requirements
One June 22, 2000 the Securities and Ex- Reg. S-P requires all registered brokers, deal-
change Commission (the “SEC”) adopted ers, investment advisers and investment
Regulation S-P [17C.F.R.§§248.1–248.30] companies to “adopt policies and proce-
(“Reg. S-P”) as mandated by the Gramm- dures that address administrative, technical,
Leach-Bliley Act (also known as the Financial and physical safeguards for the protection
Services Modernization Act). Reg S-P was of consumer records and information.”
adopted substantially as proposed.The rules [§248.30]
become effective November 13, 2000, and
compliance is mandatory by July 1, 2001. Reg. S-P requires the regulated firms to
Since the clock is running, this article is sub- provide initial and annual notices to cus-
mitted for your consideration. continued on page 2
October 2000 • Issue 00–3
Another Notice, continued from page 1
tomers concerning its privacy policies and pro- for the investment company to provide them with
cedures. It also requires “opt out” notices if privacy notices. On the other hand, both the bro-
the firm elects to disclose non-public personal ker-dealer and the investment adviser need
information. non-public personal information in their files. As
a consequence, the firms must both provide pri-
This article focuses on the notice requirement.
vacy notices.
The notice provisions provide insights with respect
to possible policies and procedures. The second A key issue on providing notices is whether the
basic requirement—creating/drafting policies and firms adopt a policy to not share non-public per-
procedures, is the topic for another article. sonal information about its current and former
shareholders.
Part One—Notices
Reg. S-P is designed to protect “individual” Notices required depend on whether and
consumers, not businesses. to whom the non-public personal informa-
tion is shared.
The scope of Reg. S-P is limited. As set forth in
§248.1(b), “scope” of Reg. S-P “applies only to §248.4(a) of Reg. S-P requires an initial notice. Firms
non-public personal information about individu- “must” provide a clear and conspicuous notice
als who obtain financial products or services that accurately reflects [its] privacy policies and
primarily for personal, family or household pur- practices “to customers” when the customer re-
poses . . . .” It “does not apply to companies or lationship is established.
about individuals who obtain financial products On the other hand, under §248.4(b), notice is not
or services for business . . . purposes.” required for non-customer “consumers” if the
The limitation on scope is refined through the firm does not share data with a “non affiliated
definition of who is the firm’s “consumer” in third party.”
§248.3(g) of Reg. S-P. “Consumer means an indi-
§248.5 of Reg. S-P requires an annual notice to
vidual who obtains or has obtained a financial
customers. It requires firms to “provide a clear
product or service from [the firm] that is used
and concise notice to customers that accurately
primarily for personal, family, or household pur-
reflects [its] privacy policies and practices not less
poses, or that individual’s legal representative.” It
than annually during the continuation of the cus-
includes individuals who provide the firm with
tomer relationship.”
non-public personal information in connection
with investing in the funds, whether or not the Sharing or selling mailing lists with non-public
firm accepts the money. [§248.3(g)(2)(i)] It does personal information requires a firm to provide
not include individuals who only provide their “opt out” notices. On the other hand, if the firm
“name, address and general areas of investment only shares information with its service provid-
interest in connection with a request for a pro- ers, this sharing does not require “opt out” notices.
spectus…” [§248.3(g)(2)(ii)] In addition, individuals §248.13 provides that the “opt out” requirements
are not firm consumers if they have an account of §§248.7 and 248.10 do not apply if the firm
with another institution that, in turn, invests merely provides the non-public personal informa-
in a fund through an omnibus account. tion to a nonaffiliated third party to perform
[§248.3(g)(2)(iv). services or functions on the firm’s behalf, if the
firm (i) provides the initial notice and (ii) enters
Take, for example, the case where an individual’s
into a contractual agreement with the third party
account is managed by an investment adviser, with
that prohibits the third party from disclosing or
securities held at a broker-dealer.The account in-
using the information other than to carry out the
vests in investment company shares. The broker
agreed upon service or function (e.g., a transfer
buys the shares in its name. Brokers with omni-
agent and/or fulfillment agreement).
bus accounts are not consumers; and, therefore,
since they are not consumers, there is no need continued on page 3
2
Another Notice, continued from page 2
What must be in the notice? safeguards for the protection of customer records
and information.
§248.6 of Reg. S-P sets forth nine items that a
firm “must include” in its notices: These polices and procedures must be reason-
(1) categories of non-pubic personal informa- ably designed to:
tion that the firm collects; (a) In sure the security and confidentiality of
(2) non-public personal information that it customer records and information;
discloses; (b) Protect against any anticipated threats or
(3) categories of affiliates and non-affiliated hazards to the security or integrity of cus-
third parties to whom the firm discloses tomer records and information; and
the information;
(c) Protect against unauthorized access to or
(4) policy with respect to disclosure of use of customer records or information
“former” customer information; that could result in substantial harm or
(5) if information is shared under service pro- inconvenience to any customer.”
vider agreements, the categories of
information disclosed and the categories Closing
of service providers who receive the in- Remember that July 1, 2001 is the compliance
formation; “opt out” details, if applicable; date.This is the date that policies and procedures
(6) credit reporting matters, if applicable; are to have been in place, all notices given and
(7) the firm’s “policies and practices with other procedures implemented.This provides nine
respect to protecting the confidentiality months for firms to evaluate their procedures
and security of non-public personal infor- and procedures in place at service providers.
mation;” and Based on data considered in the past, it is my
understanding that many firms already have in
(8) details concerning non-affiliated third par-
place security procedures of the kind contem-
ties subject to exceptions, if applicable.
plated by §248.30 of Reg. S-P.After you gather the
The Prominence and Form of privacy data, I think you will find that your firm will not
notices not specified. have to “recreate the wheel” creating procedures.
The rules require a firm to “provide a clear and
concise notice to customers that accurately re-
flects [its] privacy policies and practices.” The
prominence and location of the notice is a mat-
ter of judgment. §248.3(c)(l) of Reg. S-P provides
that notice must be “designed to call attention to
the nature and significance of the information in
the notice.” For example, a box containing the
notice placed inside the back cover of an invest-
ment adviser’s brochure should be sufficient.
Part Two—Procedures
What is required?
Ҥ248.30 Procedures to safeguard
customer records and information.
Every broker, dealer, and investment company,
and every investment adviser registered with the
[SEC] must adopt policies and procedures that www.dearborn.com 1(800)824-8742
address administrative, technical, and physical
3
NASD Conference 8/17/2000–8/18/2000
Among many issues discussed at the 2000 NASD addressed the guidelines required to modify a
Regulation, Inc. Compliance Seminar, the District member firm’s Membership Agreement. Any
Offices reiterated the importance of Preventive change that materially expands a member firm’s
Compliance and new filing requirements for Mem- operations or activities, modify or remove restric-
bership Changes. tions previously imposed by the NASD Regulation,
Inc. must first be approved by the NASD/District.
The Preventive Compliance seminar included re-
The guidelines to comply with these requests are
minders that all member firms review their
for set forth by the NASD Membership and Reg-
corporate books and records, written supervi-
istration Rules 1017 and 1018. A member firm’s
sory procedures, continuing education plan, and
ability to continue to meet the standards for mem-
registration records on an annual basis to avoid
bership as reflected in Rule 1014 are the main
potential violation of the Rules. The seminar fo-
consideration that the NASD/District Offices use
cused on the continuous updates required to the
to approve any modifications.The entire applica-
firm’s written supervisory procedures and con-
tion approval time schedule was discussed in detail.
tinuing education in detail. Also, the firms were
reminded to review all agents outside business Finally, the NASD reminded member firms that
activities requirements and registrations via Web/ their primary intent was to assist firms to main-
CRD in order to maintain current information. tain compliance with the Membership Agreements
in force and to assist firms to avoid violations of
The Membership Changes seminar specifically the Membership Agreements.
4
Visit our Web site!
www.mglconsulting.com
Contact us!
MGL Consulting Corporation
4200 Research Forest Drive, Suite 500
The Woodlands,TX 77381
(281) 367–0380 • fax (281) 364–1452
Written Supervisory
Procedures
If you have not had an opportunity to review the
firm’s Written Supervisory Procedures to include
new rules and regulations being enforced by the
NASD Regulation, Inc., please take time to do so
before December 31, 2000. As usual, we are
available to assist you with any updates you de-
termine your firm may require.
OATS Reporting Requirements
Member firms are responsible to evidence proper
registration with the OATS Reporting. Newly ap-
proved Member Firms should confirm that they
or their clearing firm have completed the regis-
tration application, testing and filing requirements.
OATS Reporting requirements for manual orders
is scheduled to be enforced effective 12/15/2000.
Firms placing electronic orders should be in OATS
compliance within 30 days of NASD approval.
Investment Adviser Registration Depository
Investment Advisers are now required to submit their filing obligations with federal and state regulators
through a new electronic system created by the Securities and Exchange Commission and state securities
authorities with a single electronic filing made over the Internet. The new system is called the Investment
Adviser Registration Depository (IARD). Application filings are amended for electronic filings and reflect
recent regulatory changes. Information in the filings will be stored in a database that members of the public
will be able to access most information about investment advisers and persons who work for investment
advisers.This system is being operated by the NASD Regulation, Inc. and will be similar to the Web/CRD System.
Please contact Suzette M. Surman at (281) 367–0380 ext. 109 or ssurman@mglconsulting.com for
more information.
5
Change of
Designated Accountant
Please be reminded that any changes to the Des-
ignated Accountant must be completed prior to
the firm’s fiscal year-end. Member firms who have
annual Engagement Letters should obtain newly
s Prepare license executed Engagement Letters for the next fiscal
applications year-end prior to 12/10/2000.
s Prepare state
license applications
s Complete
appointment form NASD/CRD Renewals
s Monitor license First invoicing is expected to be completed
renewals by November 6, 2000 and will be due to the
s Conduct NASD/Renewal Department no later than
background checks December 8, 2000.
s Obtain certification
of licensure letters
s Assist with address Pre-Hire Authorization and
or name changes
for agents/firms Review of Agent Records
and more . . . NASD examiners have the ability to determine
how many Pre-Hire requests are made by mem-
ber firms. Therefore, all firm’s should maintain
We provide unparalleled service a Pre-Hire Authorization Form executed by the
from start . . . to finish! individual on file.
Coordinating Insurance Continuing Education
With Firm Element Continuing Education
In addition to tracking licensing for clients, MGL will track continuing education requirements and notify each
firm/agent accordingly. Firms are notified 8 weeks prior to the continuing education due date. For firms that
are affiliated with or members of the NASD, MGL’s staff will also review the firm element continuing educa-
tion program for your firm and coordinate the insurance continuing education with the NASD firm element
program to reduce the number of continuing education courses that must be taken.Through our partnership
with Dearborn we are able to provide more unique services to our customers. Dearborn offers a compre-
hensive library of high quality continuing education courses that are regulation and market focused. These
include over 75 state-approved insurance continuing education courses and 50 courses specifically designed
for firm element training. Courses focus on product training, business practices and markets and applications.
For information, contact Gail Arcieri or Debbie Kaschik at (281) 367–0380.
6
Notes for Continuing Education
Reminders:
!
s Course Completion Acknowledgments and
Course Evaluation Forms are due for the first
Continuing Education
three quarters. Course Completion
s The deadline for all Course Completion Acknowledgments and
Acknowledgments and Course Evalua- Course Evaluation Forms
tion forms is December 31, 2000.
are due for the first three
s Please forward a copy of your End of the Year
Regulatory Element Reports upon receipt.
quarters. Please forward
(We’ll prompt this now and send a letter re- those as soon as possible
questing this with a copy of a report.) to Deborah Kaschik’s
The end of the year is rapidly approaching. The attention at MGL.
time to think about 2001 is here.We will be con-
tacting you regarding your 2001 CE Firm Element
needs as well as any Insurance CE needs you may
have.We look forward to talking with you.
providing unparalleled
service from start . . .
to finish!
s NASD
s Insurance CE
s Professional Development
7
4200 Research Forest Drive, Suite 500
The Woodlands, Texas 77381
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