SEC proposes identity theft “red flags” rules to protect investors


Broker-dealers, mutual funds and other SEC-regulated entities would be required to create programs to detect and respond appropriately to identity theft red flags under an SEC rules proposal announced Tuesday and issued for public comment.

The proposed rules are designed to protect investors from identity theft and are similar to rules adopted in 2007 by the Federal Trade Commission (FTC) and other federal financial regulatory agencies. CPAs and others received a permanent exemption from the FTC’s rule with the enactment of the Red Flag Program Clarification Act of 2010, which limited the scope of the FTC’s rule by narrowing the definition of who can be considered a “creditor.”

According to the SEC’s proposal, SEC-regulated entities would be required to adopt a written policy for detection and response to identity theft. The proposed rule would include guidelines and examples of red flags to help firms comply.

The SEC issued the proposal jointly with the Commodity Futures Trading Commission (CFTC). Authority over certain parts of the Fair Credit Reporting Act was transferred from the FTC to the SEC and CFTC, for entities they regulate, by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.

Comments can be submitted on the SEC’s website. The proposal will be published in the Federal Register with a 60-day comment period.

Ken Tysiac ( ) is a JofA senior editor.

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