by Andras P. Teleki
This EIA focuses on the SEC
version of the Red Flag Rules. The SEC version of the Red Flag Rules will be
known as Regulation S-ID and would be added after Regulations S-P and S-AM when
On March 6, 2012, the SEC and
CFTC jointly proposed rules (the "Proposal") that would require
registered broker-dealers, investment companies, investment advisers, commodity
trading advisors, commodity pool operators and introducing brokers to develop
and implement a written identity theft prevention program (a
"Program") that is designed to detect, prevent and mitigate identity
theft in connection with certain existing accounts or the opening of new
accounts (the "Red Flag Rules"). The SEC and CFTC are also proposing
guidelines (the "Guidelines") to assist entities in the formulation
and maintenance of a Program that would satisfy the requirements set forth in
In 2007, the Federal Trade Commission ("FTC") adopted rules and
guidelines regarding the detection, prevention and mitigation of identity theft
(the "FTC Red Flag Rules"). The Proposal, if adopted, would not
contain new requirements not already in the FTC Red Flag Rules, nor would it
expand the scope of those rules to include new entities that were not already
previously covered by the FTC Red Flag Rules. Thus, if a broker-dealer,
registered investment company, registered investment adviser, commodity trading
advisor, commodity pool operator or introducing broker was subject to the FTC
Red Flag Rules, they would be subject to the Red Flag Rules.
The SEC and CFTC were required to issue the Proposal pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act ("Dodd-Frank").
Dodd-Frank provides for the transfer of rulemaking responsibility and
enforcement authority with respect to identity theft red flag rules to the SEC
and CFTC with respect to entities under their respective jurisdiction. The
Proposal is the SEC's and CFTC's version of the FTC Red Flag Rules.
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P. Teleki is a partner at K&L Gates LLP, focuses his practice on regulatory
compliance issues facing registered investment companies, including mutual
funds and closed-end funds, broker-dealers, investment advisers, unregistered
funds, variable insurance product issuers and distributors, and related service
providers. He also advises financial institutions on anti-money laundering and
OFAC issues. Mr. Teleki also has experience in corporate governance and