United States: New Obligations For SEC Regulated Entities Under SEC Identity Theft Rules

Identity theft is a serious privacy and security problem that has escalated in recent years as more and more business functions move online. To keep pace with this emerging risk, US regulators have been requiring companies to build governance structures with systemic controls rather than ad hoc processes. To this end, the Securities and Exchange Commission (SEC) recently adopted Regulation S-ID (Reg S-ID), a comprehensive set of rules requiring certain entities it regulates to implement an identity theft program (Program) to detect, prevent and respond to identity theft.1 These "Red Flags" rules only apply to SEC-regulated entities, that meet the definition of "financial institution"2 or "creditor"3 under the Fair Credit Reporting Act (FCRA) and are very similar to the Red Flags rules adopted by the Federal Trade Commission (FTC).

Entities Subject to Regulation S-ID

According to the final rule, SEC regulated entities that could fall within the meaning of the term "financial institution" could include:

  • a broker, dealer or any other person that is registered or required to be registered under the Securities Exchange Act of 1934 (Exchange Act);
  • an investment company that is registered or required to be registered under the Investment Company Act of 1940 (Investment Company Act), that has elected to be regulated as a business development company under the Investment Company Act, or that operates as an employees' securities company under the Investment Company Act; or
  • an investment adviser that is registered or required to be registered under the Investment Advisers Act of 1940 (Investment Advisers Act).

More specifically, because the definition of "financial institution" focuses on entities that hold "transaction accounts" belonging to individuals, examples of SEC regulated entities that may be subject to Reg S-ID include, but are not limited to: a broker-dealer that offers custodial accounts; a registered investment company that enables investors to make wire transfers to other parties or that offers check-writing privileges; and an investment adviser that directly or indirectly holds transaction accounts and that is permitted to direct payments or transfers out of those accounts to third parties.

Requirements of Regulation S-ID

The SEC adopted Reg S-ID jointly with the Commodities Futures Trading Commission (CFTC) under rulemaking authority delegated to both agencies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. New SEC Chairman Mary Jo White called the new rules "a common sense response to the growing threat of identity theft to all American's who invest, save or borrow money." Regulation S-ID was approved unanimously. 

Although there are no surprises in this final rulemaking, the requirements will be brand new for certain broker-dealers, investment companies, and investment advisers registered under the Investment Advisers Act, such as private fund and hedge fund advisers. Under Reg S-ID, broker dealers, mutual funds, investment advisers, and certain other entities must implement a Program to:

  • identify relevant types of identity theft red flags,
  • detect the occurrence of those red flags,
  • respond appropriately to detected red flags,
  • train staff on identity theft policies and procedures,
  • oversee vendors compliance with these rules,
  • periodically update the identity theft program, and
  • take actions to mitigate credit and debit card fraud (card issuers only).

Like the FTC's Red Flags rules, Reg S-ID allows for flexibility in how entities identify and manage identity theft risks that are specific to their business. This is designed to keep the rules dynamic as technology and risk profiles change over time. Categories of red flags that should be considered include alerts, notifications, or other warnings received from consumer reporting agencies or service providers, suspicious identifying information and or documentation, suspicious activity related to a covered account and notice from customers, victims of identify theft, law enforcement authorities or other persons regarding possible identity theft.

Financial institutions must create a written Program that is approved by either their Board of Directors, a committee of the Board, or if the entity does not have a Board, from a designated senior management employee. A Chief Compliance Officer can be designated with responsibility for oversight of the Program. We counsel clients addressing these issues to consider creating a compliance project plan to ensure that business process owners have documented and repeatable policies and procedures for detecting, preventing and responding to identity theft risks. Periodic and regular monitoring of Program performance, as well as revalidating policies and procedures, are all best practices in building a sustainable Program. Finally, because of the sensitive nature of these issues, an annual update to the Board of Directors would be another strong pillar in a governance framework.

Reg S-ID will be effective 30 days after its publication in the Federal Register. Affected entities are required to be in compliance with Reg S-ID six months after its effective date.


1. http://www.sec.gov/rules/final/2013/34-69359.pdf

2. The final rule defines the term "financial institution" in the final rules by reference to the definition of the term in section 603(t) of the FCRA. That section defines a financial institution to include certain banks and credit unions, and "any other person that, directly or indirectly, holds a transaction account (as defined in section 19(b) of the Federal Reserve Act) belonging to a consumer." Section 19(b) of the Federal Reserve Act defines "transaction account" to include an "account on which the ...account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payment or transfers to third persons or others." Section 603(c) of the FCRA defines "consumer" as an individual; thus, to qualify as a financial institution, an entity must hold a transaction account belonging to an individual. 

3. The FCRA defines "creditor," by reference to the Equal Credit Opportunity Act ("ECOA"), as a person that regularly extends, renews or continues credit, or makes those arrangements that "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 FCRA excludes from this definition a creditor that "advance funds on behalf of a person for expenses incidental to a service provided by the creditor to that person...." 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Dec 2017, Webinar, New York, United States

Join Dentons for a complimentary webinar focused on the ongoing challenge of integrating new technologies into existing information governance policies and risk management frameworks.

24 Jan 2018, Seminar, San Francisco, United States

Dentons will host our Fourth Annual Courageous Counsel Leadership Institute in January, centered on the theme "Cultivating Innovation."

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.