[Federal Register: April 27, 2001 (Volume 66, Number 82)]
[Rules and Regulations]
[Page 21235-21262]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ap01-21]


[[Page 21235]]

-----------------------------------------------------------------------

Part IV





Commodity Futures Trading Commission





-----------------------------------------------------------------------



17 CFR Part 160



Privacy of Consumer Financial Information; Final Rule


[[Page 21236]]


-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 160

RIN 3038-AB68


Privacy of Consumer Financial Information

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission is adopting part 160,
privacy rules promulgated under section 5g of the Commodity Exchange
Act, which directs the Commission to prescribe regulations under Title
V of the Gramm-Leach-Bliley Act. Title V requires certain federal
agencies to adopt rules implementing notice requirements and
restrictions on the ability of financial institutions to disclose
nonpublic personal information about consumers to nonaffiliated third
parties. Under section 503 of the Gramm-Leach-Bliley Act, a financial
institution must provide its customers with a notice of its privacy
policies and practices, and must not disclose nonpublic personal
information about a consumer to nonaffiliated third parties unless the
institution provides certain information to the consumer and the
consumer has not elected to opt out of the disclosure. Section 505 of
the Gramm-Leach-Bliley Act further requires certain federal agencies to
establish for financial institutions appropriate standards to protect
customer information. The part 160 rules implement these requirements
of the Gramm-Leach-Bliley Act with respect to futures commission
merchants, commodity trading advisors, commodity pool operators and
introducing brokers that are subject to the jurisdiction of the
Commission under the Commodity Exchange Act as amended.

DATES:
    Effective Date: These rules are effective June 21, 2001.
    Compliance Date: Compliance will be mandatory as of March 31, 2002.
Joint marketing and service agreements in effect as of March 31, 2002
must be brought into compliance with section 160.13 by March 31, 2003.

FOR FURTHER INFORMATION CONTACT: Susan Nathan, Assistant General
Counsel, or Bella Rozenberg, Attorney, Office of General Counsel; Nancy
E. Yanofsky, Assistant Chief Counsel, Division of Economic Analysis; or
Ky Tran-Trong, Attorney, Division of Trading and Markets, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW., Washington, DC 20581. Telephone: (202) 418-5000, E-mail:
(SNathan@cftc.gov), (BRozenberg@cftc.gov), (NYanofsky@cftc.gov), or
(KTran-Trong@cftc.gov).

SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
today is adopting new part 160, 17 CFR 160, under Subtitle A of Title V
of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338
(1999), to be codified at 15 U.S.C. 6801-6809) and section 5g of the
Commodity Exchange Act, 7 U.S.C. 7b-2, as amended by the Commodity
Futures Modernization Act of 2000 (Pub. L. No. 106-554, 114 Stat.
2763).

Table of Contents

I. Background
II. Overview of Comments Received
III. Section-by-Section Analysis
IV. Cost-Benefit Analysis
V. Related Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
Text of Final Rules
Appendix--Sample Clauses

I. Background

    Subtitle A of Title V of the Gramm-Leach-Bliley Act (GLB Act),\1\
captioned ``Disclosure of Nonpublic Personal Information'' (Title V),
limits the instances in which a financial institution may disclose
nonpublic personal information about a consumer to nonaffiliated third
parties, and requires a financial institution to disclose to all of its
customers the institution's privacy policies and practices with respect
to information sharing with both affiliates and nonaffiliated third
parties.\2\ The Commodity Futures Trading Commission (Commission) and
entities subject to its jurisdiction originally were excluded from
Title V's coverage.\3\ The agencies that were covered by Title V--the
Office of the Comptroller of the Currency (OCC), Board of Governors of
the Federal Reserve System (Federal Reserve Board), Federal Deposit
Insurance Corporation, Office of Thrift Supervision (collectively, the
Banking Agencies), Secretary of the Treasury, Securities and Exchange
Commission (SEC), National Credit Union Administration, and Federal
Trade Commission (FTC) (collectively with the Banking Agencies, the
Agencies)--have each adopted implementing regulations under Title V.\4\
---------------------------------------------------------------------------

    \1\ Pub. L. No. 106-102, 113 Stat. 1338 (1999) (to be codified
in scattered sections of 12 U.S.C. and 15 U.S.C.)
    \2\ GLB Act Secs. 501-510 (to be codified at 15 U.S.C. 6801-
6809). As discussed in more detail below, the GLB Act distinguishes
``consumers'' from ``customers'' for purposes of its notice
requirements. Generally speaking, a customer is a consumer with whom
a financial institution has established a ``customer relationship.''
See id. Secs. 502(a), 503(a) and 509(9) and (11).
    \3\ See id. Sec. 509(3)(B).
    \4\ See 65 FR 40334 (June 29, 2000) (SEC); 65 FR 35162 (June 1,
2000) (Secretary of the Treasury and the Banking Agencies); 65 FR
33646 (May 24, 2000) (FTC); 65 FR 31722 (May 18, 2000) (National
Credit Union Administration). See also 66 FR 8616 (Feb. 1, 2001)
(Secretary of the Treasury and the Banking Agencies); 66 FR 8152
(Jan. 30, 2001) (National Credit Union Administration); 65 FR 54186
(Sept. 7, 2000) (FTC--advance notice of proposed rulemaking)
(Guidelines for Establishing Standards for Safeguarding Customer
Information).
---------------------------------------------------------------------------

    The Commodity Futures Modernization Act of 2000 (CFMA) amended the
Commodity Exchange Act (CEA or Act) to provide that certain entities
subject to the Commission's jurisdiction'specifically, futures
commission merchants (FCMs), commodity trading advisors (CTAs),
commodity pool operators (CPOs) and introducing brokers (IBs)--shall be
treated as financial institutions for purposes of Title V. At the same
time, Congress also amended the CEA to make the Commission a federal
functional regulator within the meaning of Title V and to require the
Commission to prescribe regulations under Title V within six months.
    The Commission has consulted with representatives from the Agencies
throughout this rulemaking process, including during the comment
period. The rules that we are adopting today are, to the extent
possible, consistent with and comparable to the rules adopted by the
Agencies. The rules include examples that illustrate the application of
the general rules and an appendix of sample clauses that may, to the
extent applicable, be used by FCMs, CTAs, CPOs and IBs to comply with
the notice and opt-out requirements. These examples and sample clauses
differ from those used by the Agencies in order to provide more
meaningful guidance to the financial institutions subject to the
Commission's jurisdiction. Furthermore, in order to minimize compliance
burdens, the rules permit those firms that are registered with both the
Commission and the SEC to comply with part 160 by complying with the
privacy rules of the SEC, which are found at 17 CFR part 248.
Similarly, the Commission has determined to permit CTAs that are also
registered or required to be registered as an investment advisor with a
state securities regulator to comply with part 160 by complying with
the privacy rules of the FTC, 16 CFR part 313.

[[Page 21237]]

    Title V also requires the Agencies to establish appropriate
standards for financial institutions subject to their jurisdiction to
safeguard customer records and information. The rules that we are
adopting today require FCMs, CTAs, CPOs and IBs to adopt appropriate
policies and procedures that address safeguards to protect this
information.

II. Overview of Comments Received

    On March 19, 2001, the Commission issued a notice of proposed
rulemaking (the proposal'' or ``proposed rules'').\5\ The Commission
received a total of four comments in response to the proposal.
---------------------------------------------------------------------------

    \5\ Privacy of Customer Information, 66 FR 15550 (Mar. 19,
2001).
---------------------------------------------------------------------------

    Managed Futures Association (MFA), a trade association, commented
on the following aspects of the proposal: The proposed compliance date;
exemptions for unregistered entities; and substituted compliance for
dual registrants and affiliated financial institutions. MFA expressed
support for the Commission's statement regarding its jurisdiction under
the privacy rules over entities that are either registered or exempt
from registration, and its belief that the rules are consistent with
Congressional intent as expressed in the CFMA and with the privacy
rules adopted by the other federal functional regulators.
    The Futures Industry Association (FIA) wrote generally in support
of the proposed rules, endorsing the Commission's proposal to permit
those Commission registrants who are also registered with the SEC to
comply instead with the SEC's parallel rules. In this regard, FIA
suggested that the Commission's final rules clarify the scope of its
substituted compliance provision and expressed support for an expansion
of the substituted compliance provision. FIA also recommended that the
Commission's proposal to exclude from compliance non-U.S. entities that
are exempt from registration pursuant to an order issued under
Commission rule 30.10. Finally, FIA requested that the Commission
expand the subsequent delivery exceptions to the initial notice
requirement in proposed rule 160.4(e) to permit an FCM that accepts
customer accounts in a bulk transfer pursuant to Commission rule 1.65
to provide its initial privacy notice subsequent to the establishment
of a relationship with such customers.
    Southwest Futures, Inc., an IB, objected to the ability of an FCM
to share with others confidential information regarding an IB's
customers. A member of the public expressed general support for rules
to facilitate the privacy of citizens' nonpublic information but
suggests that the definition of ``consumer'' be expanded.
    These comments, and the Commission's responses, are discussed in
greater detail below.

III. Section-by-Section Analysis

Section 160.1  Purpose and Scope

    Paragraph (a) of section 160.1 identifies three purposes of the
rules. First, the rules require a financial institution to provide
notice to customers about the institution's privacy policies and
practices. Second, the rules describe the conditions under which a
financial institution may disclose nonpublic personal information about
a consumer to a nonaffiliated third party. Third, the rules provide a
method for a consumer to ``opt out'' of the disclosure of that
information to nonaffiliated third parties, subject to certain
exceptions discussed below.
    Paragraph (b) sets out the scope of the Commission's rules and
identifies the financial institutions covered by the rules. The
Commission proposed including all FCMs, CTAs, CPOs and IBs within the
scope of part 160, whether or not such entities were required to
register with the Commission. The Commission, however, specifically
solicited comment on whether it should seek to exempt some or all
categories of unregistered CTAs and CPOs from part 160's coverage. MFA
commented that the Commission should exempt, or alternatively create a
safe harbor permitting more limited compliance for, unregistered CTAs
and CPOs that do not provide nonpublic information to nonaffiliated
third parties outside those permitted under the service provider
exception. MFA asserted that Congress did not intend to subject all
financial institutions subject to the Commission's jurisdiction to the
privacy rules, that the Commission had proposed exempting foreign
unregistered FCMs from part 160's scope, and that an exemption for
unregistered CTAs and CPOs would be consistent with Congress's intent
to the extent that such unregistered entities are not sharing nonpublic
consumer information with nonaffiliated third parties.
    The Commission has carefully considered MFA's comment and has
decided not to amend the proposed rules to exempt or create a safe
harbor for unregistered CTAs and CPOs. From the face of the statute, it
appears that Congress intended to treat all CTAs and CPOs as financial
institutions, irrespective of their registration status.\6\ The
Commission also believes that it would be inconsistent with Title V of
the GLB Act to exempt unregistered CTAs and CPOs from part 160 because
that title is a consumer protection law that appears designed to afford
privacy protection to all consumers.\7\ For these reasons, the
Commission believes that all CTAs and CPOs should be required to comply
with the requirements of part 160 and notes the limited nature of those
requirements for CTAs and CPOs that do not share nonpublic personal
information with nonaffiliated third parties.
---------------------------------------------------------------------------

    \6\ Section 5g of the Act states in relevant part that ``any
futures commission merchant, commodity trading advisor, commodity
pool operator, or introducing broker that is subject to the
jurisdiction of the Commission with respect to any financial
activity shall be treated as a financial institution for purposes of
Title V [of the GLB Act] with respect to such financial activity.''
(emphasis added) The SEC also has applied its privacy regulations to
unregistered brokers, dealers and funds. 65 FR at 40335 n.12. In
accordance with section 505(a)(5) of the GLB Act, however, the SEC's
privacy rules do not apply to investment advisers that are not
registered with the SEC. Id.
    \7\ MFA correctly notes that the Commission is exempting foreign
unregistered FCMs from the scope of part 160. See infra. This
approach maintains consistency with the approach taken by the other
federal functional regulators with regard to offshore financial
institutions. To the Commission's knowledge, the other federal
functional regulators have not exempted any domestic entities from
the scope of their privacy rules.
---------------------------------------------------------------------------

    Paragraph (b) also provides that part 160 does not apply to any
foreign (or non-resident) FCM, CTA, CPO or IB that is not registered or
required to be registered with the Commission. The Commission believes
that it would be impracticable to apply part 160 to those foreign
unregistered entities and, further, that subjecting these unregistered
foreign entities to the obligations to provide the privacy and opt out
notices under part 160 would not add to the protections provided to
customers under the GLB Act. If a foreign financial institution
conducts activities through U.S. interstate commerce in a manner that
subjects it to the registration requirements of the Act, and such
foreign financial institution has not been exempted from registration
requirements by the Commission, it is subject to the part 160
requirements and any other applicable protections to customers, such as
anti-fraud protections. The Commission expressly sought comment on the
application of this approach to firms that have been exempted from
registration requirements pursuant to a rule 30.10 order. FIA observed
that it would be difficult, if not impossible, for the Commission to
assure compliance

[[Page 21238]]

by such entities with its privacy rules and, moreover, that these
entities may be subject to privacy laws in their home countries that
are different from, and may be stricter than, the Commission's rules.
While the Commission supports consistent protections for consumers
regardless of the entity from whom a financial product or service is
obtained, at this stage the Commission does not believe that it is
appropriate to attempt to apply the rule to offshore offices of
financial institutions. Accordingly, the Commission has adopted the
rule as proposed, but will continue to consider this question.
    We note that other federal, State, or applicable foreign laws may
impose limitations on disclosures of nonpublic personal information in
addition to those imposed by the GLB Act and the privacy rules the
Commission is adopting today. Thus, financial institutions will need to
monitor and comply with relevant legislative and regulatory
developments that affect the disclosure of consumer information.
Paragraph (b) also makes clear that nothing in the rules is intended to
supercede rules relating to medical information that have been issued
by the Secretary of Health and Human Services under the Health
Insurance Portability and Accountability Act of 1996, 42 U.S.C. 1320d-
1320d-8.\8\
---------------------------------------------------------------------------

    \8\ See 65 FR 82462 (Dec. 28, 2000).
---------------------------------------------------------------------------

Section 160.2  Rule of Construction

    Paragraph (a) of section 160.2 sets out a rule of construction
intended to clarify the effect of the examples used in the rules and
the sample clauses in the appendix to the rules. Given the wide variety
of transactions that Title V covers, new part 160 includes rules of
general applicability and provides examples that are intended to assist
financial institutions in complying with the rule. The examples are not
intended to be exhaustive; rather, they are intended to provide
guidance on how the rules would apply in specific situations. The rule
also states that compliance with the examples will constitute
compliance with the rule.\9\ The Commission believes that, when read
together, these provisions give financial institutions sufficient
flexibility to comply with the regulation and sufficient guidance about
the use of the examples. FIA endorses this approach and has asked that
the Commission consider publishing additional guidance similar to that
published by the federal banking regulators when they promulgated their
privacy rules.
---------------------------------------------------------------------------

    \9\ Compare 65 FR at 35227 (OCC rules) with 65 FR at 40363 (SEC
rules).
---------------------------------------------------------------------------

    Paragraph (b) of section 160.2 authorizes ``substituted
compliance'' in certain situations. Specifically, paragraph (b)(1)
provides that an FCM, CTA, CPO or IB that is also registered with the
SEC in an equivalent capacity may comply with part 160 by complying
with Regulation S-P, the privacy rules of the SEC, which are found at
17 CFR part 248. Similarly, under this provision, securities broker-
dealers registered with the SEC that are also registered with the
Commission as an FCM or IB pursuant to a notice registration for the
purpose of trading security futures products \10\ will also be deemed
to be in compliance with part 160 if they are subject to and in
compliance with Regulation S-P. Paragraph (b)(2) of section 160.2
provides that a CTA that is a state-registered investment adviser may
comply with part 160 by complying with the privacy rules of the FTC,
which are found at 16 CFR part 313.\11\
---------------------------------------------------------------------------

    \10\ See CFMA Sec. 252.
    \11\ This provision responds to a comment of NFA seeking broader
substituted compliance for investment advisers that are state-
registered and therefore subject to the FTC's privacy rules rather
than the SEC's privacy rules. Financial institutions that choose to
substitute compliance with the FTC's rules should nonetheless refer
to the examples provided throughout part 160.
---------------------------------------------------------------------------

    Section 160.2's authorization of substituted compliance is in no
way designed to affect or limit the Commission's authority to enforce
its privacy rules against FCMs, CTAs, CPOs and IBs engaged in
activities subject to its jurisdiction. Rather, this provision simply
authorizes the identified financial institutions to comply with part
160 by complying with certain other substantially similar regulations,
and to establish that they have complied with part 160 by establishing
that they have complied with those other regulations. In this regard,
because the Commission has provided part 160 examples that are tailored
to entities under its jurisdiction, the Commission encourages those
entities that elect to comply with the substituted compliance
provisions in paragraph (b) to look to the Commission's examples for
guidance in complying with the privacy rules of the SEC and FTC,
respectively.
    In its proposal, the Commission requested comment on whether it
should provide for a broader form of substituted compliance by
permitting an FCM that is affiliated with a financial holding company,
a bank holding company, a national bank or a broker-dealer to comply
with part 160 by complying with the privacy rules of the functional
regulator for the affiliated entity. Both MFA and the FIA endorsed
substituted compliance for affiliated financial institutions. While the
Commission believes that permitting broader substituted compliance is a
desirable goal, we have decided not to adopt this approach at this
time. Rather, we believe it would be preferable to address this issue
after we have gained some administrative experience under these rules
and have further consulted with the other federal functional
regulators.

Section 160.3  Definitions

    (a) Affiliate. The rules incorporate the definition of
``affiliate'' used in section 509(6) of the GLB Act. Thus, an FCM, CTA,
CPO or IB is considered affiliated with another company if it
``controls,'' is controlled by, or is under common control with the
other company.\12\ The definition includes both financial institutions
and entities that are not financial institutions. The rules also
provide that an FCM, CTA, CPO or IB will be considered an affiliate of
another company for purposes of the privacy rules if (i) the other
company is regulated under Title V by one of the Agencies and (ii) the
privacy rules adopted by that Agency treat the FCM, CTA, CPO or IB as
an affiliate of the other company.\13\
---------------------------------------------------------------------------

    \12\ We have defined ``control'' for purposes of an FCM, CPO,
CTA or IB to mean the power to exercise a controlling influence over
the management or policies of a company whether through ownership of
securities, by contract, or otherwise. In addition, ownership of
more than 25 percent of a company's voting securities creates a
presumption of control of the company. See infra discussion of
section 160.3(j). Compare 65 FR at 35207 (Federal Reserve Board).
    \13\ Section 160.3(a)(1)-(2). This part of the definition is
designed to prevent the disparate treatment of affiliates within a
holding company structure. For example, without this provision an
FCM in a bank holding company structure might not be considered
affiliated with another entity in that organization under the
Commission's rules, even though the two entities would be considered
affiliated under the privacy rules of the Banking Agencies.
---------------------------------------------------------------------------

    (b) Clear and conspicuous. Title V and the final rules require that
various notices be ``clear and conspicuous.'' The Commission has
defined that term as it has been defined in the respective rules of the
Agencies, with conforming changes.\14\ Section 160.3(b) defines the
term to mean that the notice must be ``reasonably understandable and
designed to call attention to the nature and significance of the
information in the notice.'' This phrase is intended to provide meaning
to the term ``conspicuous.'' The Commission believes that this standard
will result in

[[Page 21239]]

notices to consumers that communicate effectively the information
consumers need in order to make an informed choice about the privacy of
their information, including whether to open a commodity interest
account or enter into an advisory agreement.
---------------------------------------------------------------------------

    \14\ See, e.g., 12 CFR 40.3(b) (OCC rules) and 17 CFR 248.3(c)
(SEC rules).
---------------------------------------------------------------------------

    Examples of ``clear and conspicuous.'' The rules provide generally
applicable guidance about ways in which an FCM, CTA, CPO or IB may make
a disclosure clear and conspicuous. We note that the examples do not
mandate how to make a disclosure clear and conspicuous. A financial
institution must decide for itself how best to comply with the general
rule, and may use techniques not listed in the examples.
    Combination of several notices. The Commission is aware that a
document may combine different types of disclosures that are subject to
specific disclosure requirements under different regulations. For
example, a CTA that includes a privacy notice in its disclosure
document would have to make the privacy notice clear and conspicuous,
and would have to prepare the disclosure document according to certain
standards under the CEA and Commission regulations.\15\ The rule
provides an example of how a financial institution may make privacy
disclosures conspicuous, including privacy disclosures that are
combined in a document with other information.\16\ In order to avoid
the potential conflicts between two different rules requiring different
sets of disclosures that are subject to different standards, the rule
does not mandate precise specifications for presenting various
disclosures.
---------------------------------------------------------------------------

    \15\ See 7 U.S.C. 6m; 17 CFR part 4.
    \16\ See section 160.3(b)(2)(ii)(E). Because we believe that
privacy disclosures may be clear and conspicuous when combined with
other disclosures, this section does not mandate that privacy
disclosures be provided on a separate piece of paper. The
requirement is not necessary and might significantly increase the
burden on financial institutions.
---------------------------------------------------------------------------

    Disclosures on Internet web pages. The rule provides guidance on
how financial institutions may clearly and conspicuously disclose
privacy-related information on their Internet sites. Disclosures over
the Internet may present some issues that will not arise in paper-based
disclosures. Consumers may view various web pages within a financial
institution's web site in a different order each time they access the
site, aided by hypertext links. Depending on the hardware and software
used to access the Internet, some web pages may require consumers to
scroll down to view the entire page. To address these issues, the rule
provides an example concerning Internet disclosures stating that FCMs,
CTAs, CPOs and IBs may comply with the rule if they use text or visual
cues to encourage scrolling down the page if necessary to view the
entire notice, and ensure that other elements on the web site (such as
text, graphics, hypertext links, or sound) do not distract attention
from the notice.\17\ The examples also note that the institution should
place a notice or a conspicuous link on a screen that consumers
frequently access, such as a page on which consumers conduct
transactions.
---------------------------------------------------------------------------

    \17\ Section 1603.(b)(2)(iii).
---------------------------------------------------------------------------

    There is a range of approaches an FCM, CTA, CPO or IB could use
based on current technology. For example, an FCM could use a dialog box
that pops up to provide the disclosure before a consumer provides
information to a financial institution. Another approach would be a
simple, clearly labeled graphic located near the top of the page or in
close proximity to the financial institution's logo, directing the
customer, through a hypertext link or hotlink, to the privacy
disclosures on a separate web page.
    (c) Collect. The GLB Act requires a financial institution to
disclose in its initial and annual notices the categories of
information that the institution collects. The Commission has defined
this term to mean obtaining information that can be organized or
retrieved by the name of the individual or by another identifying
number, symbol, or other identifying particular assigned to the
individual,\18\ irrespective of the source of the underlying
information. The definition is intended to provide guidance about the
information that an FCM, CTA, CPO or IB must include in its notices and
to clarify that the obligations arise regardless of whether the
institution obtains the information from a consumer or from some other
source. This definition is not intended to include information that an
FCM, CTA, CPO or IB receives but then immediately passes on without
retaining a copy, as such information would not be organized and
retrievable.
---------------------------------------------------------------------------

    \18\ The definition uses language from the Privacy Act of 1974,
5 U.S.C. 552a.
---------------------------------------------------------------------------

    (d) Commission. The term ``Commission'' means Commodity Futures
Trading Commission.
    (e) Commodity pool operator. The term ``commodity pool operator''
has the same meaning as in section 1a(5) of the Commodity Exchange Act,
as amended, and includes anyone registered as such under the Act.
    (f) Commodity trading advisor. The term ``commodity trading''
advisor has the same meaning as in section 1a(6) of the Commodity
Exchange Act, as amended, and includes anyone registered as such under
the Act.
    (g) Company. The rules define ``company'' to mean any corporation,
limited liability company, business trust, general or limited
partnership, association or similar organization.
    (h) Consumer. The rules define ``consumer'' as an individual
(including his or her legal representative) who obtains a financial
product or service from an FCM, CTA, CPO or IB that is to be used
primarily for personal, family or household purposes. An individual
also will be deemed to be a consumer for purposes of a financial
institution if that institution purchases the individual's account from
some other institution. The GLB Act distinguishes ``consumers'' from
``customers'' for purposes of the notice requirements imposed by that
Act. As explained in the discussion of section 160.4, a financial
institution must give a ``consumer'' the notices required under Title V
only if the institution intends to disclose nonpublic personal
information about the consumer to a nonaffiliated third party for a
purpose that is not authorized by one of several exceptions set out in
sections 160.14 and 160.15. By contrast, a financial institution must
give all ``customers,'' not later than the time of establishing a
customer relationship and annually thereafter during the continuation
of the customer relationship, a notice of the institution's privacy
policy.
    A person is a ``consumer'' under the rules if he or she obtains a
financial product or service from a financial institution that is to be
used primarily for personal, family or household purposes. The
definition of ``financial product or service'' in section 160.3(o)
includes, among other things, a financial institution's evaluation of
an individual's application to obtain a financial product or service.
Thus, a financial institution that intends to share nonpublic personal
information about a consumer with nonaffiliated third parties outside
of the exceptions described in sections 160.14 and 160.15 will have to
give the requisite notices, even if the application or request is
denied or withdrawn.
    The examples that follow the definition of ``consumer'' explain
when someone is a consumer. The examples clarify that a consumer
includes someone who provides nonpublic personal information in
connection with seeking to obtain commodity interest trading or
advisory services, but does not include someone who provides only his
or her name, address, and areas of investment interest in order to
obtain a

[[Page 21240]]

brochure or other information about a financial product or service.\19\
An individual who has an account with an originating FCM and whose
positions are carried by a clearing FCM in an omnibus account in the
name of the originating FCM is not a consumer for purposes of the
clearing FCM if the clearing FCM receives no nonpublic personal
information about the consumer.
---------------------------------------------------------------------------

    \19\ Individuals may provide this information, for example, on
``tear-out'' cards from magazines, or in telephone or Internet
requests for brochures or other information.
---------------------------------------------------------------------------

    Requirements arising from consumer relationship. While the rules
define ``consumer'' broadly, we note that this definition will not
result in any additional burden to an FCM, CTA, CPO or IB if (i) no
customer relationship is established and (ii) the institution does not
intend to disclose nonpublic personal information about the consumer to
nonaffiliated third parties. Under this approach, an FCM, CTA, CPO or
IB is under no obligation to provide a consumer who is not a customer
with any privacy disclosures unless it intends to disclose the
consumer's nonpublic personal information to nonaffiliated third
parties outside the exceptions in sections 160.14 and 160.15. The
institution may disclose a consumer's nonpublic personal information to
nonaffiliated third parties if it delivers the requisite notices and
the consumer does not opt out. Thus, the rule allows a financial
institution to avoid all of the rule's requirements for consumers who
are not customers if the institution chooses not to share information
about the consumers with nonaffiliated third parties except as provided
in the exceptions. Conversely, if an FCM, CTA, CPO or IB chooses to
share consumers' nonpublic personal information with nonaffiliated
third parties, the financial institution is free to do so, provided it
notifies consumers about the sharing and affords them a reasonable
opportunity to opt out. In this way, the rule attempts to strike a
balance between protecting an individual's nonpublic personal
information and minimizing the burden on a financial institution.
    (i) Consumer reporting agency. The rules incorporate the definition
of ``consumer reporting agency'' in section 603(f) of the Fair Credit
Reporting Act (FCRA).\20\ The term is used in sections 160.12 and
160.15.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 1681a(f).
---------------------------------------------------------------------------

    (j) Control. The rules define ``control'' for purposes of FCMs,
CTAs, CPOs or IBs to mean the power to exercise a controlling influence
over the management or policies of a company whether through ownership
of securities, by contract, or otherwise. In addition, ownership of
more than 25 percent of a company's voting securities creates a
presumption of control of the company. This definition is used to
determine when companies are affiliated, and results in financial
institutions being considered as affiliates regardless of whether the
control is exercised by a company or individual.
    (k) Customer. The rules define ``customer'' as any consumer who has
a ``customer relationship'' with a particular financial institution.
Thus, a consumer becomes a customer of a financial institution when he
or she enters into a continuing relationship with the institution. For
example, a consumer would become a customer when he or she completes
the documents needed to open a commodity interest account or enters
into an advisory agreement (whether in writing or orally).
    The distinction between consumers and customers determines the
notices that a financial institution must provide. If a consumer never
becomes a customer, the institution is not required to provide any
notices to the consumer unless the institution intends to disclose
nonpublic personal information about that consumer to nonaffiliated
third parties (outside of the exceptions as set out in sections 160.14
and 160.15). By contrast, if a consumer becomes a customer, the
institution must provide a copy of its privacy policy no later than at
the time it establishes the customer relationship and at least annually
during the continuation of the customer relationship.
    (l) Customer relationship. The rules define ``customer
relationship'' as a continuing relationship between a consumer and a
financial institution in which the institution provides a financial
product or service that is to be used by the consumer primarily for
personal, family, or household purposes. Because the GLB Act requires
annual notices of the financial institution's privacy policies to its
customers, we have interpreted that Act as requiring more than isolated
transactions between a financial institution and a consumer to
establish a customer relationship, unless it is reasonable to expect
further contact about that transaction between the institution and
consumer afterwards. Thus, the rules define ``customer relationship''
as one that generally is of a continuing nature. As noted in the
examples that follow the definition, this would include a commodity
interest account or an advisory relationship. An FCM would have a
customer relationship with a consumer when the FCM regularly enters
orders for the customer, even if the FCM holds none of the customer's
assets.
    A one-time transaction may be sufficient to establish a customer
relationship, depending on the nature of the transaction. The examples
that follow the definition of ``customer relationship'' clarify that an
individual's purchase or sale of a futures or options contract through
an FCM with whom the customer opens an account would be sufficient to
establish a customer relationship because of the continuing nature of
the service. By contrast, an individual who is merely referred by an IB
to an FCM would not be the IB's customer if the IB does not enter
orders for the individual.\21\
---------------------------------------------------------------------------

    \21\ The individual would, however, be a consumer of the IB for
purposes of the privacy rules, which would require the IB to provide
notices if it intends to disclose nonpublic personal information
about the consumer to nonaffiliated third parties outside of the
exceptions.
---------------------------------------------------------------------------

    (m) Federal functional regulator. The rules define the term
``federal functional regulator'' to include the Commission and each of
the Agencies. This term is used in two places. First, it is used in
section 160.3(a), the definition of affiliate. Second, it is used in
section 160.15(a)(4) for disclosures to law enforcement agencies,
``including federal functional regulators.''
    (n) Financial institution. The rules define ``financial
institution'' as (i) an FCM, CTA, CPO or IB that is registered with the
Commission as such or is otherwise subject to the Commission's
jurisdiction, and (ii) any institution the business of which is
engaging in activities that are financial in nature or incidental to
such financial activities as described in section 4(k) of the Bank
Holding Company Act of 1956 (BHCA).\22\ The rules exempt from the
definition of ``financial institution'' those entities specifically
excluded by the GLB Act, except to the extent those entities were
brought within the scope of Title V by section 5g of the CEA.
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 1843(k).
---------------------------------------------------------------------------

    The GLB Act excludes ``any person or entity'' that is subject to
the Commission's jurisdiction from Title V's coverage.\23\ Section 5g
of the CEA partially reverses that exclusion by providing that certain
entities subject to

[[Page 21241]]

the Commission's jurisdiction--specifically, FCMs, CTAs, CPOs and IBs--
shall be covered by Title V with respect to their financial
activity.\24\ The rule retains the exclusion of the GLB Act, to the
extent that it has not been superseded by section 5g of the CEA, to
make clear that floor brokers and various trading facilities and
clearing organizations that are subject to the Commission's
jurisdiction are not ``financial institutions'' for purposes of the GLB
Act.
---------------------------------------------------------------------------

    \23\ Section 509(3)(B) of the GLB Act provides:
    Notwithstanding subparagraph (A), the term ``financial
institution'' does not include any person or entity with respect to
any financial activity that is subject to the jurisdiction of the
Commodity Futures Trading Commission under the Commodity Exchange
Act.
    \24\ Section 5g of the CEA provides:
    Notwithstanding section 509(3)(B) of the Gramm-Leach-Bliley Act,
any futures commission merchant, commodity trading advisor,
commodity pool operator, or introducing broker that is subject to
the jurisdiction of the Commission under this Act with respect to
any financial activity shall be treated as a financial institution
for purposes of title V of such Act with respect to such financial
activity.
---------------------------------------------------------------------------

    (o) Financial product or service. The rules define ``financial
product or service'' as a product or service (i) that an FCM, CTA, CPO
or IB could offer that is subject to the Commission's jurisdiction, or
(ii) that a financial institution could offer that is financial in
nature, or incidental to such a financial activity, under section 4(k)
of the BHCA. An activity that is complementary to a financial activity,
as described in section 4(k), is not included in the definition of
``financial product or service'' under this paragraph.
    The Commission's definition of ``financial product or service''
differs from that of the other Agencies to the extent that it includes
any product or service that an FCM, CTA, CPO or IB could offer that is
subject to the Commission's jurisdiction and that is not otherwise
included as a financial activity under section 4(k) of the BHCA. The
other Agencies have defined financial product or service as any product
or service that a financial institution could offer that is financial
in nature, or incidental to such a financial activity, under section
4(k) of the BHCA. The Commission's broader definition includes certain
activity--such as acting as a CPO--which is not financial in nature, or
incidental to such a financial activity, under section 4(k) of the
BHCA.\25\ The Commission's definition of ``financial product or
service'' is designed to implement Congress'' intent in section 5g of
the CEA that customers of FCMs, CTAs, CPOs and IBs be accorded the same
privacy rights as customers of other financial institutions and is
solely for purposes of part 160.
---------------------------------------------------------------------------

    \25\ See 12 CFR 225.86 (66 FR 400, 418 (Jan. 3, 2001)).
---------------------------------------------------------------------------

    The definition includes the financial institution's evaluation of
information collected in connection with an application by a consumer
for a financial product or service even if the application ultimately
is rejected or withdrawn. It also includes the distribution of
information about a consumer for the purpose of assisting the consumer
to obtain a financial product or service.
    (p) Futures commission merchant. The term ``futures commission
merchant'' has the same meaning as in section 1a(20) of the Commodity
Exchange Act, as amended, and includes anyone registered as such under
the Act.
    (q) GLB Act. The term ``GLB Act'' means the Gramm-Leach-Bliley Act
(Pub. L. No. 106-102, 113 Stat. 1338 (1999)).
    (r) Introducing broker. The term ``introducing broker'' has the
same meaning as in section 1a(23) of the Commodity Exchange Act, as
amended, and includes anyone registered as such under the Act.
    (s) Nonaffiliated third party. The rule defines ``nonaffiliated
third party'' to mean any person (including natural persons as well as
corporate entities) except (i) an affiliate of a financial institution
and (ii) a joint employee of a financial institution and a third party.
Information received by a joint employee will be deemed to have been
given to the financial institution that is providing the financial
product or service in question. Thus, for example, if an employee of a
broker-dealer is also an employee of an FCM, information that the
employee received in connection with a securities transaction conducted
with the broker-dealer would be considered as received by the broker-
dealer.
    (t) Nonpublic personal information. Section 509(4) of the GLB Act
defines ``nonpublic personal information'' to mean ``personally
identifiable financial information'' that (i) is provided by a consumer
to a financial institution, (ii) results from any transaction with the
consumer or any service performed for the consumer, or (iii) is
otherwise obtained by the financial institution. The term also includes
any ``list, description, or other grouping of consumers, and publicly
available information pertaining to them, that is derived using any
nonpublic personal information that is not publicly available
information.'' The GLB Act excludes publicly available information
(unless provided as part of the list, description, or other grouping
described above), as well as any list, description, or other grouping
of consumers (and publicly available information pertaining to them)
that is derived without using nonpublic personal information. The GLB
Act does not define either ``personally identifiable financial
information'' or ``publicly available information.''
    The rule implements the definition of ``nonpublic personal
information'' under the GLB Act by restating the categories of
information described above. The rule provides that information will be
deemed to be ``publicly available'' and therefore excluded from the
definition of ``nonpublic personal information'' if an FCM, CTA, CPO or
IB reasonably believes that the information is lawfully made available
to the general public from one of the three categories of sources
listed in the rule.\26\ The examples provided in the rule clarify when
an FCM, CTA, CPO or IB has a reasonable belief that information is
lawfully made available to the general public. For example, an
institution would have a reasonable belief if (i) the institution has
confirmed, or the consumer has represented, that the information is
publicly available from a public source, or (ii) the institution has
taken steps to submit the information, in accordance with its internal
procedures and policies and with applicable law, to a keeper of
federal, State, or local government records who is required by law to
make the information publicly available.\27\ The examples also state
that an FCM, CTA, CPO or IB would have a reasonable belief that a
telephone number is publicly available if the institution located the
number in a telephone book or Internet listing service or if the
consumer told the institution that the number is not unlisted.\28\
Moreover, the examples make clear that an institution may not assume
information about a particular consumer is publicly available simply
because that type of information is normally provided to a government
record keeper and made available to the public by the record keeper,
because the consumer may have the ability to keep that information
nonpublic or to screen his or her identity.
---------------------------------------------------------------------------

    \26\ See section 160.3(v)(1).
    \27\ See section 160.3(v)(2)(i)(B).
    \28\ See section 160.3(v)(2)(i)(C).
---------------------------------------------------------------------------

    The approach of the rule is the same as that taken by the Agencies
in their rules\29\  and is based on the underlying principle that a
consumer in many circumstances can control the public availability or
identification of his or

[[Page 21242]]

her information and that a financial institution therefore should not
assume that the information about that consumer is in fact publicly
available. Thus, even though a lender typically enters a mortgage in
public records in order to protect its security interest, when a
borrower can maintain the privacy of his or her personal information by
owning the property and obtaining the loan through a separate legal
entity, the customer's name would not appear in the public record. In
the case of a telephone number, a person may request that his or her
number be unlisted. Thus, in evaluating whether it is reasonable to
believe that information is publicly available, a financial institution
must determine whether the consumer has kept the information or his or
her identity from being a matter of public record.
---------------------------------------------------------------------------

    \29\ See, e.g., 65 FR at 35208 (Federal Reserve Board); 65 FR at
35218 (Federal Deposit Insurance Corporation); 65 FR at 40364-65
(SEC).
---------------------------------------------------------------------------

    To implement the complex definition of ``nonpublic personal
information'' that is provided in the statute, the rule adopts a
definition that consists, generally speaking, of (i) personally
identifiable financial information, plus (ii) a consumer list or
description or grouping of consumers (and publicly available
information pertaining to the consumers) that is derived using any
personally identifiable financial information that is not publicly
available information. From that body of information, the rule excludes
publicly available information (except as noted above or if the
information is disclosed in a manner that indicates that the individual
is the institution's consumer) and any consumer list that is derived
without using personally identifiable financial information that is not
publicly available information.\30\ Examples are provided in section
160.3(t)(3) to illustrate how this definition applies in the context of
consumer lists.
---------------------------------------------------------------------------

    \30\ See section 160.3(t)(2).
---------------------------------------------------------------------------

    (u) Personally identifiable financial information. As discussed
above, the GLB Act defines ``nonpublic personal information'' to
include, among other things, ``personally identifiable financial
information'' but does not define the latter term. As a general matter,
the rules treat any personally identifiable information as financial if
the financial institution obtains the information in connection with
providing a financial product or service to a consumer. We believe that
this approach reasonably interprets the word ``financial'' and creates
a workable and clear standard for distinguishing information that is
financial from other personal information. This interpretation would
cover a broad range of personal information provided to a financial
institution, including, for example, information about the consumer's
health, as well as the fact that an individual is a customer of a
financial institution.
    The rules define ``personally identifiable financial information''
to include three categories of information. The first category includes
any information that a consumer provides a financial institution in
order to obtain a financial product or service from the institution. As
noted in the examples that follow the definition, this includes
information provided on an application to open a commodity trading
account, invest in a commodity pool or to obtain another financial
product of service. If, for example, a consumer provides medical
information on an application to obtain a financial product or service,
that information would be considered ``personally identifiable
financial information'' for purposes of the proposed rules. Similarly,
information that may be required for financial planning purposes,
including details about retirement and family obligations, such as the
care of a disabled child, would be covered by the definition.
    The second category includes any information about a consumer
resulting from any transaction between the consumer and the financial
institution involving a financial product or service. This would
include, as noted in the examples following the definition, information
about account balance, payment or overdraft history, credit or debit
card purchases or financial products purchased or sold.
    The third category includes any financial information about a
consumer otherwise obtained by the financial institution in connection
with providing a financial product or service. This would include
information obtained through an information-collecting device from a
web server, often referred to as a ``cookie.'' It would also include
information from a consumer report or from an outside source to verify
information a consumer provides on an application to obtain a financial
product or service. It would not, however, include information that is
publicly available (unless, as previously noted, the information is
part of a list of consumers that is derived using personally
identifiable financial information).
    The examples clarify that the definition of ``personally
identifiable financial information'' does not include a list of names
and addresses of people who are customers of an entity that is not a
financial institution. Thus, the names and addresses of people who
subscribe, for instance, to a particular magazine would fall outside
the definition. The examples also clarify that aggregate information
(or ``blind data'') lacking personal identifiers is not covered by the
definition of ``personally identifiable financial information.''
    (v) Publicly available information. The rules define ``publicly
available information'' as information the financial institution
reasonably believes is lawfully made available to members of the
general public from three broad types of sources.\31\ First, it
includes information from official public records, such as real estate
recordations or security interest filings. Second, it includes
information from widely distributed media, such as a telephone book,
radio program, or newspaper. Third, it includes information from
disclosures required to be made to the general public by federal,
State, or local law, such as securities disclosure documents. The rules
state that information obtained over the Internet will be considered
publicly available information if the information is obtainable from a
site available to the general public on an unrestricted basis.\32\
---------------------------------------------------------------------------

    \31\ We recognize that some information that is available to the
general public may have been published illegally. In some cases,
such as a list of customer account numbers posted on a web site, the
publication will be obviously unlawful. In other cases, the legality
of the publication may be unclear or unresolved. The rules provide
that information is ``publicly available'' if the institution
reasonably believes that information is lawfully available to the
public.
    \32\ The examples further explain that an Internet site is not
restricted merely because an Internet service provider or a site
operator requires a fee or password as long as access is otherwise
available to the general public. This recognizes that the ``widely
distributed'' requirement focuses on whether the information is
lawfully available to the general public, rather than on the type of
medium from which information is obtained.
---------------------------------------------------------------------------

    The rules treat information as publicly available if it could be
obtained from one of the public sources listed in the rules. If an
institution reasonably believes the information is lawfully made
available to the general public from one of the listed public sources,
then the information will be considered publicly available and excluded
from the scope of ``nonpublic personal information,'' whether or not
the institution obtains it from a publicly available source (unless, as
previously noted, it is part of a list of consumers that is derived
using personally identifiable financial information). Under this
approach, the fact that a consumer has given information to a financial
institution would not automatically extend to that information

[[Page 21243]]

the protections afforded to nonpublic personal information.
    The rules incorporate the concept of information being lawfully
obtained. Thus, information unlawfully obtained will not be deemed to
be publicly available notwithstanding that it may be available to the
general public through widely distributed media.
    (w) You. The rules define you as any FCM, CTA, CPO or IB subject to
the jurisdiction of the Commission. The term ``you'' is used in order
to make the rules easier to understand and use.

Subpart A--Privacy and Opt Out Notices

Section 160.4  Initial Privacy Notice to Consumers Required

    Initial notice required. The GLB Act requires that a financial
institution provide an initial notice of its privacy policies and
practices in two circumstances. For customers, the notice must be
provided no later than at the time of establishing a customer
relationship. For consumers who do not, or have not yet, become
customers, the notice must be provided before disclosing nonpublic
personal information about the consumer to a nonaffiliated third party.
    Paragraph (a) of section 160.4 states the general rule regarding
these notices. A financial institution must provide a clear and
conspicuous notice, as defined in section 160.3(b), that accurately
reflects the institution's privacy policies and practices. Accordingly,
a financial institution must maintain the protections that its notice
represents it will provide. The Commission expects that FCMs, CTAs,
CPOs and IBs will take appropriate measures to adhere to their stated
privacy policies and practices.
    The rules do not prohibit two or more institutions from providing a
joint initial, annual or opt out notice, as long as the notice is
delivered in accordance with the rules and is accurate with respect to
all institutions.\33\ For example, institutions that could provide
joint notices include: (i) an IB and its FCM; (ii) a CTA and the FCM
carrying the customer's account; and (iii) a clearing FCM and an
executing FCM. Similarly, the rules do not preclude an institution from
establishing different privacy policies and practices for different
categories of consumers, customers or products so long as each
particular consumer or customer receives a notice that is accurate with
respect to that individual.
---------------------------------------------------------------------------

    \33\ See also infra discussion of section 160.9(f).
---------------------------------------------------------------------------

    Notice to customers. The rules require that a financial institution
provide an individual a privacy notice not later than the time that it
establishes a customer relationship subject to the limited
circumstances set forth in paragraph (e), as discussed below. Thus, the
initial notice may be provided at the same time an FCM, CTA, CPO or IB
is required to give other notices, such as the rule 1.55 risk
disclosure statement that an FCM or IB is required to provide before
opening an account for a customer and the part 4 disclosure document
that a CPO or CTA is required to provide before soliciting or accepting
funds from pool participants (in the case of a CPO) or soliciting or
entering into an agreement to direct a client's account (in the case of
a CTA).\34\ This approach is intended to strike a balance between (i)
ensuring that consumers will receive privacy notices at a meaningful
point during the process of ``establishing a customer relationship''
and (ii) minimizing unnecessary burdens on FCMs, CTAs, CPOs and IBs
that may otherwise result if the rule were to require financial
institutions to provide consumers with a series of notices at various
times in a transaction.
---------------------------------------------------------------------------

    \34\ The Commission recognizes that the disclosure requirements
of part 4 apply as early as the solicitation stage, which often
occurs before a customer relationship has been established. See 17
CFR 4.21 (CPO disclosure document) and 17 CFR 4.31 (CTA disclosure
document). In these circumstances, a CPO or CTA would not be
required to provide the initial privacy notice until such time as
the customer relationship has been established, although it could
elect to provide the notice earlier at the time of the solicitation.
---------------------------------------------------------------------------

    Paragraph (c) of section 160.4 identifies the time a customer
relationship is established as the point at which a financial
institution and a consumer enter into a continuing relationship. The
examples in paragraph (c) clarify that, for customer relationships that
are contractual in nature including, for example, a commodity interest
advisory relationship, a customer relationship is established when the
customer enters into the contract (whether written or oral) that is
necessary to engage in the activity in question. Thus, for example, a
customer relationship is established with an FCM when the customer
executes a commodity interest trade through the FCM or opens an account
with the FCM under its procedures.
    Notice to consumers. For consumers who do not establish a customer
relationship, the initial privacy notice may be provided at any point
before the financial institution discloses nonpublic personal
information to nonaffiliated third parties. As provided in paragraph
(b) of section 160.4, if the institution does not intend to disclose
the information in question or intends to make only those disclosures
that are authorized by one of the exceptions or as required by law,\35\
the institution is not required to provide the initial notice.
---------------------------------------------------------------------------

    \35\ See sections 160.14, 160.15.
---------------------------------------------------------------------------

    How to provide notice. When you are required by this section to
deliver an initial privacy notice, the notice must be delivered
according to the provisions of section 160.9. The general rule requires
that the initial notice be provided so that each recipient can
reasonably be expected to receive actual notice.
    New notices not required for each new financial product or service.
The Commission believes that it would be burdensome, with little
corresponding benefit to the consumer, to require a financial
institution to provide the same consumer with additional copies of its
initial notice every time the consumer obtains a financial product or
service. Accordingly, the final rule states, in section 160.4(d), that
a financial institution will satisfy the notice requirements when an
existing customer obtains a new financial product or service if the
institution's initial, revised or annual notice is accurate with
respect to the new financial product or service.
    Exceptions to allow subsequent delivery of notice. As proposed,
section 160.4(e) would permit a financial institution to provide
subsequent delivery of the initial notice required by paragraph (a)(1)
within a reasonable time after the customer relationship is established
in limited instances. For example, the institution may provide notice
after the fact if the customer has not elected to establish a customer
relationship. This might occur, for instance, when a commodity interest
account is transferred from a financially-distressed FCM to another FCM
in an emergency situation. Subsequent delivery of the initial notice
would also be permitted after the establishment of a customer
relationship when to do otherwise would substantially delay the
consumer's transaction and the customer agrees to receive the notice at
a later time. An example of this is when an investor requests over the
telephone that an FCM execute a trade.
    In response to the proposed rules, FIA commented that it was
unclear how the subsequent delivery exceptions would apply in the
context of a bulk transfer under Commission Rule 1.65. Rule 1.65
establishes a ``negative consent'' procedure for the transfer of
customers'' accounts from one FCM to another. Because the customer has
the right to move his or her account to another FCM prior to the
transfer, FIA requested

[[Page 21244]]

clarification regarding the ability of a transferee FCM to take
advantage of the section 160.4(e) exceptions. FIA expressed the belief
that subsequent delivery of the initial notice should also be permitted
in the bulk transfer context, and asked the Commission to amend the
rule accordingly. The Commission agrees with this interpretation and
notes that historically, the Commission has considered a bulk transfer
to be a transfer that is not at the customer's election. Nevertheless,
to provide further guidance, the Commission has determined to add a new
exception in paragraph (e)(1)(iv) that specifically addresses a bulk
transfer carried out in accordance with Rule 1.65.
    We note that, in most situations, a financial institution should
give the initial notice at a point when the consumer still has a
meaningful choice about whether to enter into the customer
relationship. The exceptions listed in the examples, while not
exhaustive, are intended to illustrate the less frequent situations
when delivery either would pose a significant impediment to the conduct
of a routine business practice or the customer agrees to receive the
notice later in order to obtain a financial product or service
immediately.
    In circumstances when it is appropriate to deliver an initial
notice after the customer relationship has been established, a
financial institution should deliver an initial notice within a
reasonable time thereafter. The Commission believes that a rule
prescribing the maximum number of days in which a financial institution
must deliver a notice in these circumstances would be inappropriate
because (a) the circumstances when an after-the-fact notice is
appropriate are likely to vary significantly, and (b) a rule that
attempts to accommodate every circumstance is likely to provide more
time than is appropriate in many circumstances.\36\
---------------------------------------------------------------------------

    \36\ The Commission believes, however, that allowing the
transferee FCM 60 days to deliver the initial privacy notice to the
customer following a Rule 1.65 bulk transfer as requested by FIA
would be unreasonable and inconsistent with the intent of the
privacy rules. Instead, the transferee FCM would be expected to
deliver the initial privacy notice no later than the time that it
delivers the monthly account statements required by Rule 1.33.
---------------------------------------------------------------------------

Section 160.5  Annual Privacy Notice to Customers Required

    Section 503 of the GLB Act requires a financial institution to
provide notices of its privacy policies and practices to its customers
at least annually. Section 160.5 implements this requirement by
requiring that a clear and conspicuous notice that accurately reflects
the institution's current privacy policies and practices be provided at
least once during any period of twelve consecutive months during which
the customer relationship exists. An institution may select a calendar
year as the 12-month period within which notices will be provided and
provide the first annual notice at any point in the calendar year
following the year in which the customer relationship was established.
Section 160.5(a)(1) also requires that an institution apply the 12-
month rule to its customers on a consistent basis. The rules governing
how to provide an initial notice also apply to annual notices.
    Section 503(a) of the GLB Act requires that the annual notice be
provided ``during the continuation'' of a customer relationship.
Accordingly, the rules state that a financial institution is not
required to provide an annual notice to a customer with whom it no
longer has a continuing relationship. For example, a customer becomes a
former customer when the individual's account is closed.

Section 160.6  Information To Be Included in Privacy Notices

    Section 503 of the GLB Act identifies the categories of information
that must be included in a financial institution's initial and annual
privacy notices and establishes the general requirement that a
financial institution must provide customers with a notice describing
the institution's policies and practices with respect to, among other
things, disclosing nonpublic personal information to both affiliates
and nonaffiliated third parties. Section 503(b) of the GLB Act
identifies certain elements that the notice must address.
    The required content is the same for initial and annual notices of
privacy policies and practices. While the information contained in the
notices must be accurate as of the time the notices are provided, a
financial institution may prepare its notices based on current and
anticipated policies and practices.
    Subsection (a) of section 160.6 prescribes the information to be
included; subsection (c) provides examples of how to comply with this
requirement.
    1. Categories of nonpublic personal information that a financial
institution may collect. Section 503(b)(2) of the GLB Act requires a
financial institution to inform its customers about the categories of
nonpublic personal information that the institution collects. Section
160.6(a)(1) implements this requirement and paragraph (c)(1) provides
an example of compliance that focuses on the source of the information
collected. As described in the example, a financial institution will
satisfy this requirement if it categorizes the information according to
the sources, such as application information, transaction information,
and consumer report information. While financial institutions may
provide more detail about the categories and information collected,
they are not required to do so.
    2. Categories of nonpublic personal information that a financial
institution may disclose. Section 503(a)(1) of the GLB Act requires the
financial institution's initial and annual notice to provide
information about the categories of nonpublic personal information that
may be disclosed either to affiliates or nonaffiliated third parties.
Rule 160.6(a)(2) implements this requirement. The examples of how to
comply with this rule in paragraph (c)(2) focus on the content of the
information to be disclosed. A financial institution may satisfy this
requirement by categorizing information according to source and
providing examples of the content of this information. These categories
might include application information (such as assets, income, and
investment goals), identifying information (such as name, address and
social security number), transaction information (such as information
about account activity and balances), and information from consumer
reports (such as credit history).
    Financial institutions may choose to provide more detailed
information in the initial and annual notices. If a financial
institution does not disclose, and does not intend to disclose,
nonpublic personal information to affiliates or nonaffiliated third
parties, its initial and annual notices may simply state this fact
without further elaboration about categories of information disclosed.
    3. Categories of affiliates and nonaffiliated third parties to whom
a financial institution discloses nonpublic personal information.
Section 503(a) of the GLB Act includes a general requirement that a
financial institution provide notice to its customers of the
institution's policies and practices with respect to disclosing
nonpublic personal information to affiliates and nonaffiliated third
parties. Section 503(b) provides that the notice required by section
503(a) must include certain specified items, including the requirement
that a financial institution inform its customers about its policies
and practices with respect to disclosing nonpublic personal information
to nonaffiliated third parties. We believe

[[Page 21245]]

that sections 503(a) and 503(b) of the GLB Act, when read together,
require a financial institution's notice to address disclosures of
nonpublic personal information to both affiliates and nonaffiliated
third parties.
    Rule 160.6(a)(3) implements the notice requirement of section 503.
The example in paragraph (c)(3) explains that a financial institution
will adequately categorize the affiliates and nonaffiliated third
parties to whom it discloses nonpublic information about consumers if
it identifies the types of businesses in which they engage. Types of
businesses may be described in general terms, such as financial
products or services, if the financial institution provides examples of
the significant types of businesses engaged in by the recipient, such
as retail banking, mortgage lending, life insurance or securities
brokerage.
    Section 502(e) of the GLB Act creates exceptions to the
requirements that apply to the disclosure of nonpublic personal
information to nonaffiliated third parties. In addition, section 503(b)
of the GLB Act does not require a financial institution to list the
categories of persons to whom information may be disclosed under any of
those enumerated exceptions. Accordingly, rule 160.6(b) requires only
that a financial institution inform consumers that it makes disclosures
as permitted by law to nonaffiliated third parties in addition to those
described in the notice.
    If a financial institution does not disclose, and does not intend
to disclose, nonpublic personal information to affiliates or
nonaffiliated third parties, its initial and annual notices may state
this fact without further elaboration about categories of third
parties.
    4. Information about former customers. Section 503(a)(2) of the GLB
Act requires that the financial institution's initial and annual
privacy notices include the institution's policies and practices with
respect to disclosing nonpublic personal information about persons who
have ceased to be customers of the financial institution. Section
503(b)(1)(B) requires that this information be provided with respect to
information disclosed to nonaffiliated third parties. We believe that,
read together, sections 503(a)(2) and (b)(1)(B) require a financial
institution to include in its initial and annual notices the
institution's policies and practices with respect to sharing
information about former customers with all affiliates and
nonaffiliated third parties. Rule 160.6(a)(4) sets forth this
requirement. This rule does not require a financial institution to
provide notice and opportunity to opt out to a former customer before
sharing nonpublic personal information about the former customer with
an affiliate.
    5. Information disclosed to service providers. Section 502(b)(2) of
the GLB Act permits a financial institution to disclose nonpublic
personal information about a consumer to a nonaffiliated third party
that performs services for the institution, including marketing
financial products or services under a joint agreement between the
financial institution and at least one other financial institution. In
such cases, a consumer has no right to opt out, but the financial
institution must inform the consumer that it will be disclosing the
information in question unless the service falls within one of the
exceptions enumerated in section 502(e) of the GLB Act.
    Rule 160.6(a)(5) implements these provisions by requiring that, if
a financial institution discloses nonpublic personal information to a
nonaffiliated third party under the exception for service providers and
joint marketing, it must include in its initial and annual privacy
notices a separate description of the categories of information that
are disclosed and the categories of third parties providing the
services. A financial institution may comply with these requirements by
providing the same level of detail in the notice as is required to
satisfy sections 160.6(a)(2) and (3).
    6. Right to opt out. Sections 503(a)(1) and (b)(2) of the GLB Act
require a financial institution to provide customers with a notice of
its privacy policies and practices concerning, among other things,
disclosure of nonpublic personal information consistent with section
502 of the GLB Act. Rule 160.6(a)(6) implements this section of the GLB
Act by requiring the initial and annual privacy notices to explain the
right to opt out of disclosures of nonpublic personal information to
nonaffiliated third parties, and the methods available to exercise that
right.
    7. Disclosures made under the Fair Credit Reporting Act. Pursuant
to section 503(b)(4) of the GLB Act, a financial institution's initial
and annual notice must include the disclosures, if any, required under
section 603(d)(2)(A)(iii) of the FCRA.\37\ That section excludes from
the definition of ``consumer report'' (and, accordingly, the
protections provided under the FCRA for information contained in
consumer reports) the communication of certain consumer information
among affiliated entities if the consumer is notified about the
disclosure of the information and given an opportunity to opt out of
the information sharing. Information that can be shared among
affiliates under this provision generally is personal information
provided directly by the consumer to the financial institution, such as
income and social security number, in addition to information contained
in credit bureau reports.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 1681a(d)(2)(A)(iii).
---------------------------------------------------------------------------

    Rule 160.6(a)(7) implements section 503(b)(4) of the GLB Act by
requiring that a financial institution's initial and annual privacy
notices include any disclosures the institution makes under section
603(d)(2)(A)(iii) of the FCRA.
    8. Confidentiality and security. Pursuant to section 503(a)(3) of
the GLB Act, a financial institution's initial and annual privacy
notices must provide information about the institution's policies and
practices with respect to protecting the nonpublic personal information
of consumers. Section 503(b)(3) requires that the notices include the
policies that the financial institution maintains to protect the
confidentiality and security of nonpublic personal information in
accordance with section 501, which requires the federal functional
regulators to establish standards governing the administrative,
technical and physical safeguards of customer information.\38\
---------------------------------------------------------------------------

    \38\ See infra discussion of section 160.30.
---------------------------------------------------------------------------

    Rule 160.6(a)(8) implements these provisions by requiring a
financial institution to include in its initial and annual privacy
notices the institution's policies and practices with respect to
protecting the confidentiality and security of nonpublic personal
information. The example in the rules states that a financial
institution may comply with the requirement for confidentiality and
security if the institution explains such matters as who has access to
the information and the circumstances under which the information may
be accessed. An institution's security policy should include safeguards
to protect the integrity of nonpublic personal information and thus,
should also focus on the measures the financial institution takes to
protect against reasonably anticipated threats or hazards. The rule
does not require a financial institution to disclose technical or
proprietary information about how it safeguards consumer information.
    Short-form initial notice. Although the general rule requires a
financial institution to provide both the initial

[[Page 21246]]

and opt out notices to a consumer before disclosing nonpublic financial
information about that person to nonaffiliated third parties, the
Commission believes that the need to provide a copy of a financial
institution's complete initial notice to consumers is less compelling
when there is no customer relationship. Accordingly, section 160.6(d)
states that a financial institution may provide a ``short-form''
initial privacy notice along with the opt out notice to a consumer with
whom the institution does not have a customer relationship. The short-
form notice must clearly and conspicuously state that the disclosure
containing information about the institution's privacy policies and
practices is available upon request and provide one or more means by
which the consumer may obtain a copy of the notice. The rule also
requires a financial institution to provide a consumer who is
interested in the more complete privacy disclosures with a reasonable
means to obtain them.

Section 160.7  Form of Opt Out Notice to Consumers; Opt Out Methods

    Section 160.7 provides that any financial institution required to
supply an opt out notice under section 160.10 must provide a clear and
conspicuous notice to each consumer that accurately explains the right
to opt out. The notice must inform the consumer that the institution
may disclose nonpublic personal information to nonaffiliated third
parties, state that the consumer has the right to opt out, and provide
the consumer with a reasonable means by which to opt out.
    The examples provided in paragraph (a)(2) of section 160.7 state
that a financial institution will provide adequate notice of the right
to opt out if it identifies the categories of information that may be
disclosed and the categories of nonaffiliated third parties to whom the
information may be disclosed and explains that the consumer may opt out
of those disclosures. A financial institution that plans to disclose
only limited types of information or to make disclosures only to a
specific type of nonaffiliated third party may provide a
correspondingly narrow notice to consumers. To minimize the number of
opt out notices a financial institution must provide, however, the
institution may wish to base its notices on current and anticipated
information sharing plans. A new opt out notice is not required for
disclosures to different types of nonaffiliated third parties or of
different types of information so long as the most recent opt out
notice is sufficiently broad to cover the entities or information in
question. A financial institution also need not provide subsequent opt
out notices when a consumer establishes a new type of customer
relationship with that financial institution, unless the institution's
opt out policies vary based on the type of customer relationship.
    The examples suggest several methods of providing reasonable means
to opt out, including check-off boxes, reply forms, electronic mail
addresses, and toll-free telephone numbers. A financial institution
does not provide a reasonable means of opting out if the only means
provided is for the consumer to write his or her own letter requesting
to opt out, although an institution may honor such a letter if
received.
    Paragraph (b) of section 160.7 applies to delivery of the opt out
notice the same rules that apply to delivery of the initial and annual
privacy notices,\39\ and clarifies that the opt out notice may be
provided together with, or on the same form as, the initial and annual
notices. Paragraph (c) provides that if the opt out notice is provided
after the initial notice, a financial institution must provide a copy
of the initial notice along with the opt out notice.
---------------------------------------------------------------------------

    \39\ See section 160.9.
---------------------------------------------------------------------------

    Paragraph (d) of section 160.7 states that if two or more consumers
jointly obtain a financial product or service from a financial
institution, the institution may provide a single opt out notice. The
opt out notice must, however, explain how the financial institution
will treat an opt out direction by a joint customer. The Commission
invited comment on how the right to opt out should apply in the case of
joint accounts; no comments were received. The Commission has observed,
however, that disclosure obligations arising from joint accounts are
well settled under other rules, such as the regulations implementing
the Equal Credit Opportunity Act (Regulation B, 12 CFR part 202) and
the Truth in Lending Act (Regulation Z, 12 CFR part 226). Under both
Regulation B and Regulation Z, a financial institution is permitted to
give only one notice. The authorities cited include requirements that
the financial institution give disclosures, as appropriate, to the
``primary applicant'' if this is readily apparent (see 12 CFR 202.9(f)
(Reg. B) and 226.5(b) (Reg. Z)). The Commission accordingly believes
that a financial institution should have the option of providing one
privacy notice per account, regardless of the number of persons on the
account. Each of the account holders must, however, have the right to
opt out. The Commission also recognizes that there may be circumstances
where one or more of the joint account holders may want separate
notices. Accordingly, the final rule states in Sec. 160.7(d) that the
financial institution may send one notice, but must honor requests from
one or more joint account holders for separate notices. The final rule
also requires a financial institution to state in its opt out notice
provided to a joint account holder whether the institution will
consider an opt out by a joint account holder as an opt out by all of
the account holders or whether each account holder is permitted to opt
out separately.
    Paragraph (e) provides that a financial institution must comply
with the customer's opt out as soon as reasonably practicable after
receiving it. Paragraph (f) clarifies that a consumer has the right to
opt out at any time.
    Paragraph (g) states that an opt out will continue until it is
revoked by the consumer in writing , in hard copy or, if the consumer
agrees, electronically. When a customer relationship terminates, the
customer's opt out direction continues to apply to the nonpublic
personal information collected by the financial institution during or
related to the relationship. That opt out will continue until the
customer revokes it. If that individual subsequently establishes a new
customer relationship with the financial institution, however, the opt
out direction that applied to the former relationship does not apply to
the new relationship and the institution must provide a new opt out
notice to the customer in connection with the new relationship.

Section 160.8  Revised Privacy Notices

    This section sets forth the rules governing a financial
institution's obligations in the event the institution changes its
disclosure policies. As stated in this section, a financial institution
may not directly or through an affiliate disclose nonpublic personal
information to a nonaffiliated third party under the new policy unless
the institution first provides a revised notice and a new opportunity
to opt out. The institution must wait a reasonable period of time
before disclosing information according to the terms of the revised
notice in order to afford the consumer a reasonable opportunity to opt
out. A financial institution must provide a consumer the revised notice
of its policies and practices and an opt out notice in a manner such
that each consumer can reasonably be expected to

[[Page 21247]]

receive actual notice, as provided in Section 160.9.

Section 160.9  Delivering Privacy and Opt Out Notices

    Paragraph (a) of section 160.9 requires that any privacy and opt
out notices provided by a financial institution be provided in a manner
such that each consumer can reasonably be expected to receive actual
notice in writing, either in hard copy or, if the customer agrees,
electronically. Paragraph (b) sets forth examples of reasonable
expectation of actual notice, including, for example, hand-delivery to
the consumer of a printed copy of the notice, mailing a printed copy of
the notice to the last known address of the consumer, and, for a
consumer who conducts transactions electronically, posting the notice
on the electronic site and requiring the consumer to acknowledge
receipt of the notice as a necessary step to obtaining the particular
financial product or service. It would not be sufficient to provide
only a posted copy of the notice in a lobby. Similarly, it would not be
sufficient to provide an initial notice only on a Web page, unless the
consumer is required to access that page to obtain the product or
service in question. Electronic delivery generally should be in the
form of electronic mail to ensure that a consumer actually receives the
notice. If a financial institution and a consumer orally agree to enter
into a contract for a financial product or service over the telephone,
the institution may provide the consumer with the option of receiving
an initial notice after providing the product or service so as not to
delay the transaction.\40\
---------------------------------------------------------------------------

    \40\ See also section 160.4(e).
---------------------------------------------------------------------------

    Paragraph (c) describes additional examples of reasonable
expectation of actual notice that apply only in the context of the
annual privacy notice. A financial institution may reasonably expect
that a customer who uses the institution's web site to obtain financial
products and services will receive actual notice of the annual privacy
notice if the customer has agreed to accept notices at the
institution's web site and if the institution continuously posts a
current notice of its privacy policies and practices in a clear and
conspicuous manner on the web site. This paragraph also makes clear
that a financial institution need not send the annual privacy notice to
a customer who affirmatively requests no communication from the
institution, provided that the notice is available upon request.
Paragraph (d) prohibits financial institutions from providing privacy
notices orally. Paragraph (e) clarifies that the requirement that a
privacy policy be provided in a manner that permits a customer to
retain or reaccess the policy may be satisfied if the financial
institution makes available on its web site the privacy policy
currently in effect.
    Section 160.9(f) expressly permits the provision of joint notice
from two or more financial institutions as long as the notice is
accurate with respect to all financial institutions and identifies each
institution by name. The Commission believes that FCMs, CTAs, CPOs and
IBs should be able to combine initial, annual, or revised disclosures
in one document and to give, on a collective basis, a consumer only one
copy of the notice. For example, a clearing FCM could provide a joint
notice with an executing FCM for which it clears transactions on a
fully disclosed basis, or an IB could provide a joint notice with the
FCM to which it introduces trades. The Commission emphasizes that this
notice must be accurate for each institution that uses the notice and
must identify each institution by name.\41\
---------------------------------------------------------------------------

    \41\ In this regard, the Commission believes that each
subsidiary or affiliate of a holding company or like structure need
not necessarily be identified by legal name as long as the joint
notice clearly identifies the institutions covered by the privacy
policy. For instance, a privacy policy for ABC & Co. could state
that it applies to all institutions with the ABC name. However, if
the privacy policy applies to affiliated companies that do not share
the ABC name, the policy should specifically identify those
affiliates.
---------------------------------------------------------------------------

    Where two or more consumers jointly obtain a financial product or
service from a financial institution, paragraph (g) of section 160.9
permits the financial institution to satisfy the initial, annual and
revised notice requirements of this section by providing one notice to
those customers jointly. The final rule adds the provisions that while
only one notice is required to be sent in connection with a joint
account, the financial institution must honor requests from one or more
joint account holders for separate notices and may in its discretion
provide notices to each party to an account.

Subpart B--Limits on Disclosures

Section 160.10  Limits on Disclosure of Nonpublic Personal Information
to Nonaffiliated Third Parties

    Section 502(a) of the GLB Act generally prohibits a financial
institution from sharing nonpublic personal information about a
consumer with a nonaffiliated third party unless the institution
provides the consumer with notice of the institution's privacy policies
and practices. Section 502(b) further requires that the financial
institution provide the consumer with a clear and conspicuous notice
that the consumer's nonpublic personal information may be disclosed to
nonaffiliated third parties, that the consumer be given an opportunity
to opt out of that disclosure, and that the consumer be informed as to
how to opt out.
    Section 160.10 implements these provisions by setting forth the
criteria that a financial institution must satisfy before disclosing
nonpublic personal information to nonaffiliated third parties and by
defining ``opt out'' in a way that incorporates the exceptions to the
right to opt out enunciated in sections 160.13, 160.14 and 160.15.
    The rule requires that the consumer's opportunity to opt out be
``reasonable,'' which recognizes that the appropriate waiting time
before disclosure will vary depending on many factors including, for
example, the method of delivery of the opt out notice. The examples
that follow the general rule are intended to provide guidance in
situations involving notices by mail or by electronic means and notices
that are to be provided in the case of isolated transactions with a
consumer. In the case of mail and electronic notices, the consumer will
be considered to have had a reasonable opportunity to opt out if the
financial institution provides 30 days in which to opt out. In the case
of an isolated transaction, the opportunity will be reasonable if the
consumer must decide as part of the transaction whether to opt out
before completing the transaction.
    The requirement that a consumer have a reasonable opportunity to
opt out does not mean that the consumer forfeits that right once the
opportunity passes. As provided in section 160.7(f), a consumer always
has the right to opt out. If, however, a consumer does not exercise the
opt out right when first presented with the opportunity, the financial
institution will be permitted to disclose nonpublic personal
information to nonaffiliated third parties during the period of time
before it implements the consumer's subsequent opt out direction.
    All customers are consumers under the rules. Accordingly, paragraph
(b) of section 160.10 clarifies that the right to opt out applies
regardless of whether a consumer has established a customer
relationship with the financial institution. The fact that a consumer
establishes a customer relationship with a financial institution does
not change the institution's obligations to comply with the
requirements of section 160.10 before sharing nonpublic personal

[[Page 21248]]

information about the consumer with nonaffiliated third parties.
Importantly, the rule applies as well in the context of a consumer who
had a customer relationship with a financial institution and
subsequently terminated the relationship. Paragraph (b) also
establishes that the consumer protections afforded by paragraph (a)
apply to all nonpublic personal information collected by a financial
institution, regardless of when collected. Thus, if a consumer elects
to opt out of information sharing with nonaffiliated third parties, the
election applies to all nonpublic information about the consumer in the
financial institution's possession, regardless of when the information
is obtained.
    Paragraph (c) of section 160.10 provides that a financial
institution may--but is not required to--provide consumers with the
option of a partial opt out in addition to the opt out required by this
section. This option could enable a consumer to limit, for instance,
the types of information disclosed to nonaffiliated third parties or
the types of recipients of the nonpublic personal information about
that consumer. If the financial institution elects to provide the
partial opt out, it must state this option in a way that clearly
informs the consumer about the choices available and the resulting
consequences.

Section 160.11  Limits on Redisclosure and Reuse of Information

    Section 502(c) of the GLB Act provides that a nonaffiliated third
party that receives nonpublic personal information from a financial
institution shall not, directly or through an affiliate, disclose the
information to any person that is not affiliated with either the
financial institution or the third party, unless the disclosure would
be lawful if it were made directly by the financial institution.
Section 160.11 implements the GLB Act's restrictions on redisclosure
and reuse of nonpublic personal information about consumers.
    The GLB Act places the institution that receives the nonpublic
personal information in the shoes of the institution that discloses the
information for the purpose of determining whether redisclosures by the
receiving institution are lawful. Thus, the GLB Act permits the
receiving institution to redisclose the information to an entity to
whom the original transferring institution could disclose the
information pursuant to one of the exceptions in sections 160.14 or
160.15, or to an entity to whom the original transferring institution
could have disclosed the information as described under its notice of
privacy policies and practices, unless the consumer has exercised the
right to opt out of that disclosure. Because a consumer can exercise
the right to opt out of a disclosure at any time, the GLB Act may
effectively preclude third parties that receive information to which
the opt out right applies from redisclosing the information other than
under one of the exceptions in sections 160.14 or 160.15.
    Sections 502(b)(2) and 502(e) of the GLB Act describe the
circumstances under which a financial institution may disclose
nonpublic personal information without providing the consumer with the
initial privacy notice and an opportunity to opt out. Those exceptions
apply only when the information is used for the specific purposes set
forth in those sections which include, for example, disclosure as
necessary to effect, administer, or enforce a transaction authorized by
the consumer. Paragraph (a)(2) of section 160.11 clarifies this
limitation on reuse as it applies to financial institutions by
providing that a financial institution may use nonpublic personal
information about a consumer that it receives from a nonaffiliated
financial institution in accordance with an exception under section
160.14 or 160.15 only for the purpose of that exception. Paragraph
(b)(2) applies the same restrictions on reuse to any nonaffiliated
third party that received nonpublic personal information from a
financial institution. The Commission has determined not to impose a
specific duty on financial institutions to monitor third parties' use
of nonpublic personal information provided by the institutions.
    The definition of nonpublic personal information dictates that all
of the information a financial institution provides to a consumer
reporting agency is nonpublic personal information. The financial
institution is permitted under section 160.15(a)(5) to disclose
nonpublic personal information to a consumer reporting agency without
giving the consumer notice and the opportunity to opt out. Thus, the
traditional consumer reporting business, whereby financial institutions
report information about their consumers to the consumer reporting
agencies which, in turn, disclose that information in the form of
consumer reports to those who have a permissible purpose to obtain
them, continues unaffected. This exception, however, does not permit
consumer reporting agencies to redisclose the nonpublic personal
information it receives from financial institutions other than in the
form of a consumer report. Accordingly, the exception does not operate
to permit the disclosure of ``credit header information'' to individual
reference services, direct marketers, or any other party that does not
have a permissible purpose to obtain that information as part of a
consumer report.\42\
---------------------------------------------------------------------------

    \42\ Credit header information traditionally has been defined to
include identifying information such as name, address, telephone
number, social security number, mother's maiden name, and age.
---------------------------------------------------------------------------

Section 160.12  Limits on Sharing Account Number Information for
Marketing Purposes

    Section 502(d) of the GLB Act prohibits a financial institution
from disclosing, other than to a consumer reporting agency, account
numbers or similar forms of access numbers or access codes for a credit
card account, deposit account, or transaction account of a consumer to
any nonaffiliated third party for use in telemarketing, direct mail
marketing, or marketing through electronic mail to the consumer.
Section 160.12 applies this prohibition to disclosures made directly or
indirectly as it has been applied by the Agencies, and incorporates the
exceptions that have been established by the Agencies.\43\ Thus, the
rule provides for two exceptions. First, it permits an FCM, CTA, CPO or
IB to disclose account numbers to an agent for the purposes of
marketing the institution's financial products or services so long as
the agent has no authority to initiate charges to the account. Second,
it permits disclosure in a private-label credit card or an affinity or
similar program where the participants in the program are identified to
the customer when the customer enters into the program. As a matter of
clarification, the rule also contains an example that provides that an
account number, or similar form of access number or access code, does
not include a number or code in an encrypted form, as long as you do
not provide the recipient with a means to decode the number or
code.\44\
---------------------------------------------------------------------------

    \43\ See, e.g., 17 CFR 248.12 (SEC privacy rules).
    \44\ This approach thus recognizes that the prohibition in
section 502(d) of the GLB Act focuses on numbers that provide access
to an account. Without a decryption number or code, the consumer's
account number cannot be accessed.
---------------------------------------------------------------------------

Subpart C--Exceptions

Section 160.13  Exception to Opt Out Requirements for Service Providers
and Joint Marketing

    Section 502(b) of the GLB Act creates an exception to the opt out
rules for the disclosure of information to a nonaffiliated third party
for its use to perform services for, or functions on behalf of, the
financial institution,

[[Page 21249]]

including the marketing of the financial institution's own products or
services or financial products or services offered under a joint
agreement between two or more financial institutions. A consumer will
not have the right to opt out of disclosing nonpublic personal
information about the consumer to nonaffiliated third parties under
these circumstances, if the financial institution satisfies certain
requirements.
    Before the information may be shared, section 502(b)(2) of the GLB
Act requires the institution to (i) ``fully disclose'' to the consumer
that it will provide this information to the nonaffiliated third party
and (ii) enter into a contractual agreement with the third party that
requires the third party to maintain the confidentiality of the
information. Paragraph (a) of section 160.13 would implement these
provisions of the GLB Act by requiring the FCM, CTA, CPO or IB to (i)
provide the initial notice required by section 160.4; and (ii) enter
into a contract that prohibits the third party from disclosing or
reusing the information other than to carry out the purposes for which
the information was disclosed, including use under an exception in
sections 160.14 and 160.15 in the ordinary course of business to carry
out those purposes. The contract should be designed to ensure that the
third party will (a) maintain the confidentiality of the information at
least to the same extent as is required for the financial institution
that discloses it, and (b) use the information solely for the purposes
for which the information is disclosed or as otherwise permitted under
the rules.\45\
---------------------------------------------------------------------------

    \45\ Consistent with the approach taken by the Agencies, the
Commission will grandfather existing service agreements. Thus,
paragraph (c) of rule 160.18 provides that contracts entered into
before the March 31, 2002 compliance date must be brought into
compliance with section 160.13 by March 31, 2003.
---------------------------------------------------------------------------

Section 160.14  Exceptions to Notice and Opt Out Requirements for
Processing and Servicing Transactions

    Section 502(e) of the GLB Act creates exceptions to the
requirements that apply to the disclosure of nonpublic personal
information to nonaffiliated third parties. Paragraph (1) of that
section provides certain exceptions for disclosures made in connection
with the administration, processing, servicing and sale of a consumer's
account. Section 160.14 sets forth those exceptions and also the
definition of ``necessary to effect, administer, or enforce'' contained
in section 509(7) of the GLB Act.
    These exceptions and the exceptions discussed in section 160.15,
below, do not affect a financial institution's obligation to provide
initial notices of its privacy policies and practices at or prior to
the time it establishes a customer relationship and annual notices
thereafter. These notices must be provided to all customers, even if
the financial institution intends to disclose the nonpublic personal
information only under the exceptions in section 160.14.

Section 160.15  Other Exceptions to Notice and Opt Out Requirements

    As discussed above, section 502(e) of the GLB Act contains several
exceptions to the requirements that otherwise would apply to the
disclosures of nonpublic personal information to nonaffiliated third
parties. Section 160.15 sets forth the exceptions that are not made in
connection with the administration, processing, servicing or sale of a
consumer's account. For example, one of the exceptions stated in the
rule is for disclosures made with the consent, or at the direction of
the consumer, provided the consumer has not revoked the consent.

Subpart D--Relation to Other Laws; Effective Date

Section 160.16  Protection of Fair Credit Reporting Act

    Section 506(c) of the GLB Act states that, except for the
amendments regarding rulemaking authority, nothing in Title V is to be
construed to modify, limit or supersede the operation of the FCRA, and
no inference is to be drawn on the basis of the provisions of Title V
whether information is transaction or experience information under
section 603 of the FCRA. Section 160.16 implements section 506(c) of
the GLB Act by restating the GLB Act with clarifying changes.

Section 160.17  Relation to State Laws

    Section 507 of the GLB Act provides that Title V does not preempt
any state law that provides greater protections than are provided by
Title V. Determinations whether a state law or Title V provide greater
protections are to be made by the FTC after consultation with the
agency that regulates either the party filing a complaint or the
financial institution about which the complaint was filed.
Determinations of whether state or federal law affords greater
protection may be initiated by any interested party or on the FTC's own
motion.
    Section 160.17 is substantively identical to section 507, noting
that the rules (like the GLB Act) do not preempt state laws that
provide greater protection for consumers than do the rules.

Section 160.18  Effective Date; Transition Rule

    Section 160.18 establishes an effective date for part 160 of June
21, 2001, which is the date by which the Commission is required to
prescribe final rules implementing Title V.\46\ In order to provide
financial institutions sufficient time to bring their policies and
procedures into compliance with the requirements of the rules, the
Commission proposed a compliance date of December 31, 2001. The
commenter recommended that the Commission delay compliance for small
entities which may not have the staff or resources to quickly develop
systems and software, and for whom compliance may be particularly
burdensome. The Commission agrees that six months may be insufficient
in certain instances for a financial institution, regardless of size,
to ensure that its forms, systems and procedures comply with the rule.
In order to accommodate situations requiring additional time, and
consistent with the approach taken by the other Agencies, the
Commission will give financial institutions until March 31, 2002 to be
in full compliance with the rule. Financial institutions are expected,
however, to begin compliance efforts promptly, to use the period prior
to March 30, 2002, to implement and test their systems, and to be in
full compliance by March 31, 2002. The Commission is also adopting a
provision that phases in compliance with respect to existing service
agreements.
---------------------------------------------------------------------------

    \46\ See Section 5g of the CEA, as amended by section 124 of the
CFMA.
---------------------------------------------------------------------------

    Under the final rule, full compliance with the rules' restrictions
on disclosures will be required by March 31, 2002. To be in full
compliance, FCMs, CTAs, CPOs and IBs will be required to provide their
existing customers with a privacy notice, an opt out notice, and a
reasonable amount of time to opt out before that date. If these have
not been provided, the disclosure restrictions will apply. This means
that an FCM, CTA, CPO or IB must cease sharing customers' nonpublic
personal information with nonaffiliated third parties on that date,
unless it may share the information under an exception under sections
160.14 or 160.15. FCMs, CTAs, CPOs and IBs that both provide the
required notices and allow a reasonable period of time to opt out
before March 31, 2002, would be able to share nonpublic personal
information

[[Page 21250]]

after that date for customers who do not opt out.
    Under the final rule, FCMs, CTAs, CPOs and IBs are not required to
give initial notices to customers whose relationships had terminated
before the date by which institutions must be in compliance with the
rules. Thus, if under a financial institution's policies an account is
inactive before March 31, 2002, then no initial notice will be required
in connection with that account. However, because these former
customers will remain consumers, an FCM, CTA, CPO or IB must provide a
privacy and opt out notice to them if the institution intends to
disclose their nonpublic personal information to nonaffiliated third
parties beyond the exceptions in sections 160.14 and 160.15.

Section 160.30  Procedures to Safeguard Customer Information and
Records

    Section 501 of the GLB Act directs the Agencies to establish
appropriate safeguards for financial institutions relating to
administrative, technical and physical safeguards to protect customer
records and information. Section 160.30 implements this directive by
requiring every FCM, CTA, CPO or IB that is subject to the jurisdiction
of the Commission to adopt policies and procedures to address the
safeguards described above. Consistent with the GLB Act, the rule
further requires that the policies and procedures be reasonably
designed to: (i) Insure the security and confidentiality of customer
records and information; (ii) protect against any anticipated threats
or hazards to the security or integrity of customer records and
information; and (iii) protect against unauthorized access to or use of
customer records or information that could result in substantial harm
or inconvenience to any customer.
    The Commission believes it is appropriate for each financial
institution to tailor its policies and procedures to its own systems of
information gathering and transfer and to the needs of its customers
and has not prescribed specific policies or procedures that financial
institutions must adopt.

IV. Cost-Benefit Analysis

    Section 15 of the Act, as amended by section 119 of the CFMA,
requires the Commission, before issuing a new regulation under the Act,
to consider the costs and benefits of its action. The Commission
understands that, by its terms, section 15 does not require the
Commission to quantify the costs and benefits of a new regulation or to
determine whether the benefits of the proposed regulation outweigh its
costs.
    Section 15 further specifies that costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
(1) Protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. Accordingly, the Commission could in its
discretion give greater weight to any one of the five enumerated areas
of concern and could in its discretion determine that, notwithstanding
its costs, a particular rule was necessary or appropriate to protect
the public interest or to effectuate any of the provisions or to
accomplish any of the purposes of the Act.
    The Commission has solicited comment on its consideration of these
costs and benefits.\47\ No comments were received. The Commission has
considered the costs and benefits of this rule package in light of the
specific areas of concern identified in section 15,\48\ and has
endeavored to impose minimal costs on the FCMs, CTAs, CPOs and IBs that
would be subject to this rule while ensuring that the benefits of the
rule can be fully realized. The Commission notes that the disclosure
and reporting requirements of this rule would be minimal for those
financial institutions that do not share nonpublic personal information
about consumers with nonaffiliated third parties. The Commission
further notes that the CFMA specifically mandates that the Commission
adopt rules to protect the privacy of consumer financial information in
accordance with Title V of the GLB Act. Accordingly, the Commission has
determined to adopt part 160 as discussed above.
---------------------------------------------------------------------------

    \47\ Id. at 15563.
    \48\ See 66 FR at 15562-15563.
---------------------------------------------------------------------------

V. Related Matters

A. Paperwork Reduction Act of 1995

    This rule contains information collection requirements. As required
by the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., the
Commission submitted a copy of the proposed rule to the Office of
Management and Budget (OMB) for its review. In response to the
Commission's invitation in the notice of proposed rulemaking to comment
on any potential paperwork burden associated with this regulation, no
comments were received from the public.
    The final rule contains several disclosure requirements. The
financial institutions covered by this regulation must prepare and
provide the initial notice to all current customers and all new
customers at the time of establishing a customer relationship (section
160.4(a)). Subsequently, an annual notice must be provided to all
customers at least once during a twelve-month period during the
continuation of the customer relationship (section 160.5(a)). The
initial notice and opt out notice must be provided to a consumer prior
to disclosing nonpublic personal information to certain nonaffiliated
third parties. If a financial institution wishes to disclose
information in a way that is inconsistent with the notices previously
given to a consumer, the institution must provide consumers with
revised notices (section 160.8(c)).
    The final rule also contains consumer reporting requirements. In
order for consumers to prevent financial institutions from sharing
their information with nonaffiliated third parties, they must opt out
(sections 160.7(a)(2)(ii), 160.10(a)(2), and 160.10(c)). At any time
during their continued relationship with the institution, consumers
have the right to change or update their opt out status with the
institution (sections 160.7(f) and (g)).
    The rule requires the collection of certain information from FCMs,
CTAs, CPOs and IBs subject to the Commission's jurisdiction. The
Commission may not conduct or sponsor, and a person is not required to
respond to an information collection unless it displays a currently
valid OMB control number. The Commission is currently requesting a
control number for this information collection from OMB.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires that federal agencies, in proposing rules, consider the impact
of those rules on small businesses. The rules adopted herein would
affect all FCMs, CTAs, CPOs and IBs, including CPOs and CTAs that are
exempt from registration requirements. The Commission has previously
established certain definitions of ``small entities'' to be used by the
Commission in evaluating the impact of its rules on small entities in
accordance with the RFA.\49\ The Commission has previously determined
that registered FCMs and registered CPOs are not small entities for the
purpose of the RFA.\50\ With

[[Page 21251]]

respect to IBs and CTAs, the Commission has stated that it is
appropriate to evaluate within the context of a particular rule whether
some or all of the affected entities should be considered small
entities and, if so, to analyze the economic impact on them of any
rule.
---------------------------------------------------------------------------

    \49\ 47 fr 18618-21 (aPR. 30, 1982).
    \50\ Id. at 18619-20.
---------------------------------------------------------------------------

    The Commission proposed part 160 and requested comments on the rule
and related issues in a Federal Register release on March 19, 2001.\51\
At the time of issuance of the proposed rule, the Commission could not
make a determination that part 160 would not have a significant
economic impact on a substantial number of small entities, and
therefore the Commission provided an Initial Regulatory Flexibility
Analysis (IRFA) in accordance with 5 U.S.C. 603 of the RFA. The
Commission did not receive any comments specifically addressing the
IRFA. Given that the burden imposed on small institutions stems in
large part from Title V of the GLB Act, and in light of the substantial
flexibility provided in the final rule to allow any financial
institution, regardless of size, to tailor its privacy practices to its
individual needs, the Commission does not believe that the rule will
have a significant economic impact on a substantial number of small
entities. Nevertheless, because Title V creates a set of requirements
that are new both to the Commission and to FCMs, CTAs, CPOs and IBs in
general, the Commission has prepared the following Final Regulatory
Flexibility Analysis (FRFA).
---------------------------------------------------------------------------

    \51\ 66 FR 15550.
---------------------------------------------------------------------------

1. Need for and Objectives of the Final Rule; Legal Basis for the Rule
    Section 5g of the Act makes the Commission a Federal functional
regulator for purposes of applying the provisions of Title V, Subtitle
A of the GLB Act addressing consumer privacy to any FCM, CTA, CPO or IB
that is subject to the Commission's jurisdiction with respect to any
financial activity, and directs the Commission to prescribe regulations
necessary to implement Title V's provisions within 6 months from the
date the CFMA was signed into law (December 21, 2000). In general,
Title V requires financial institutions to provide notice to consumers
about the institution's privacy policies and practices, restricts the
ability of a financial institution to share nonpublic personal
information about consumers to nonaffiliated third parties, and permits
consumers to prevent the institution from disclosing nonpublic personal
information about them to certain nonaffiliated third parties by
``opting out'' of that disclosure. Title V also requires the Commission
to establish appropriate standards for financial institutions subject
to its jurisdiction to safeguard customer information and records.
    The Commission believes that by adopting a rule implementing Title
V that is consistent with and comparable to those of the Agencies, the
Commission will provide the private sector greater certainty on how to
comply with the statute and clearer guidance on how the rule will be
enforced with respect to financial institutions that are subject to the
Commission's jurisdiction.
2. Small Entities to Which the Rule Will Apply
    The final rule would apply to all FCMs, CTAs, CPOs and IBs subject
to the Commission's jurisdiction, regardless of size, including those
with assets of under $100 million. As noted in the IRFA, neither Title
V nor section 5g of the Act provide a general exception for small
entities, nor does it appear that such an exception would be consistent
with the purposes of the GLB Act. Because the rule would also apply to
CTAs and CPOs that are exempt from the Commission's registration
requirements, the Commission cannot make a precise estimate of the
number of small entities that would be subject to the final rule.
3. Compliance Requirements and Effects of the Final Rule on Small
Entities
    A detailed description of the final rule's requirements is set
forth above in the section-by-section analysis (part III). Among other
things, the final rule requires financial institutions, i.e., FCMs,
CTAs, CPOs and IBs, to prepare a notice of their privacy practices and
policies and provide that notice to consumers under conditions as
specified in the rule (e.g., a privacy notice must be provided no later
than at the time that a customer relationship is established and then
once annually for the duration of that customer relationship). A
financial institution that discloses nonpublic personal information
about consumers to nonaffiliated third parties will be subject to
additional mandates, including a requirement to provide an opt out
notice to consumers along with a reasonable opportunity to opt out of
certain disclosures. If the institution does not intend to share that
information with nonaffiliated third parties, then it need not provide
a privacy or opt out notice to the consumer. In addition to the notice
and opt out requirements, Title V directs the Commission to establish
appropriate standards for administrative, technical and physical
safeguards to protect customer records and information. The rule
implements this section by requiring every FCM, CTA, CPO and IB to
adopt policies and procedures to address these safeguards.
    There are many exceptions to the general requirements stated above.
For example, an institution may share a consumer's nonpublic personal
information with nonaffiliated third parties without having to give an
opt out notice if such sharing is necessary to effect, administer or
enforce a transaction requested or authorized by the consumer. These
exceptions have the effect of minimizing the burden on institutions of
all sizes. In addition, the rules do not specify the means by which
institutions may ensure the safety of customer information and records
in order to allow each institution to tailor its policies and
procedures to its own systems of information gathering and transfer,
and the needs of its customers.
    To comply with the final rule, financial institutions will need,
among other things, to prepare disclosure forms, make various
operational changes, and train staff. Professional skills needed to
comply with the final rule may include clerical, computer systems,
personnel training, as well as legal drafting and advice. Compliance
requirements will vary considerably among institutions depending, for
example, on an institution's information sharing practices, whether the
institution already has or discloses a privacy policy, and whether the
institution already has established an opt out mechanism pursuant to
the Fair Credit Reporting Act. The Commission did not receive any
comments addressing the compliance requirements described in the IRFA.
4. Summary of Significant Issues Raised by the Public Comments;
Descriptions of Steps the Commission Has Taken to Minimize Burden
    In response to comments received on the proposed rule, the
Commission has considered the following alternatives to minimize the
economic burden of the rule: (a) An exemption from coverage of the
rule, or any part thereof, for unregistered entities; (b) delay of the
compliance date; and (c) substituted compliance for dual registrants
and affiliated financial institutions.
    As discussed above, neither the GLB Act nor section 5g of the CEA
provide a general exception for small or unregistered entities. As
stated in section 501(a) of the GLB Act, ``It is the policy of Congress
that each financial

[[Page 21252]]

institution has an affirmative and continuing obligation to respect the
privacy of its customers and to protect the security and
confidentiality of those customers' nonpublic personal information.''
(Emphasis added.) Section 5g of the CEA provides that any futures
commission merchant, commodity trading advisor, commodity pool
operator, or introducing broker that is subject to the jurisdiction of
the Commission under this Act with respect to any financial activity
shall be treated as a financial institution for purposes of title V of
[the GLB Act] with respect to such financial activity.'' (Emphasis
added.) Accordingly, the rule applies to all FCMs, CTAs, CPOs and IBs,
including those that are small entities or are unregistered pursuant to
an exemption. The final rule, however, reflects certain changes that
should increase flexibility and lower costs for those entities.
    First, the Commission has extended the compliance date of the rule
from December 31, 2001 to March 31, 2002. Similarly, the Commission has
extended the compliance date with respect to existing service
agreements to March 31, 2003. The Commission expects that delaying
compliance for an additional 90 days will lessen the burden of the rule
on small entities because they will have additional time to budget for
any necessary expenses and to implement all necessary operational
changes required to comply with this rule.
    Second, the Commission has expanded its substituted compliance
proposal to permit commodity trading advisors that are registered or
required to be registered as an investment advisor with a state
securities regulator to comply with this rule by complying with the
privacy rule issued by the Federal Trade Commission. This minimizes any
potential regulatory overlap that these entities otherwise might have
faced.
    Finally, the final rule, like the proposed rule, provides for
performance rather than design standards. The rule does not specify the
form of privacy notices or the method of delivery of the notices to
customers and consumers. Similarly, the rule does not specify the
policies and procedures that FCMs, CTAs, CPOs and IBs must adopt to
ensure the privacy of the financial information and records of their
customers and consumers. The Commission has also included non-exclusive
examples of conduct throughout the final rule that illustrate ways to
comply with particular provisions. Accordingly, the rule provides
substantial flexibility so that FCMs, CTAs, CPOs and IBs may meet the
requirements of part 160 in a way that best suits the institution's
individual needs.

List of Subjects in 17 CFR Part 160

    Brokers, Consumer protection, Privacy, Reporting and recordkeeping
requirements.

Text of Final Rules

    For the reasons articulated in the preamble, the Commission amends
Title 17 of the Code of Federal Regulations by adding a new Part 160 to
read as follows:

PART 160--PRIVACY OF CONSUMER FINANCIAL INFORMATION

Sec.
160.1   Purpose and scope.
160.2   Rule of construction.
160.3   Definitions.
Subpart A--Privacy and Opt Out Notices
160.4  Initial privacy notice to consumers required.
160.5   Annual privacy notice to customers required.
160.6   Information to be included in privacy notices.
160.7   Form of opt out notice to consumers; opt out methods.
160.8   Revised privacy notices.
160.9   Delivering privacy and opt out notices.
Subpart B--Limits on Disclosures
160.10   Limits on disclosure of nonpublic personal information to
nonaffiliated third parties.
160.11   Limits on redisclosure and re-use of information.
160.12   Limits on sharing account number information for marketing
purposes.
Subpart C--Exceptions
160.13  Exception to opt out requirements for service providers and
joint marketing.
160.14   Exceptions to notice and opt out requirements for
processing and servicing transactions.
160.15   Other exceptions to notice and opt out requirements.
Subpart D--Relation to Other Laws; Effective Date
160.16  Protection of Fair Credit Reporting Act.
160.17   Relation to state laws.
160.18   Effective date; transition rule.
160.19-160.29   [Reserved]
160.30   Procedures to safeguard customer records and information.

Appendix to Part 160--Sample Clauses

    Authority: 7 U.S.C. 7b-2 and 12a(5); 15 U.S.C. 6801 et seq.


Sec. 160.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal
information about consumers by the financial institutions listed in
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
    (3) Provides a method for consumers to prevent a financial
institution from disclosing nonpublic personal information to most
nonaffiliated third parties by ``opting out'' of that disclosure,
subject to the exceptions in Secs. 160.13, 160.14, and 160.15.
    (b) Scope. This part applies only to nonpublic personal information
about individuals who obtain financial products or services primarily
for personal, family, or household purposes from the institutions
listed below. This part does not apply to information about companies
or about individuals who obtain financial products or services
primarily for business, commercial, or agricultural purposes. This part
applies to all futures commission merchants, commodity trading
advisors, commodity pool operators and introducing brokers that are
subject to the jurisdiction of the Commission, regardless whether they
are required to register with the Commission. These entities are
hereinafter referred to in this part as ``you.'' This part does not
apply to foreign (non-resident) futures commission merchants, commodity
trading advisors, commodity pool operators and introducing brokers that
are not registered with the Commission. Nothing in this part modifies,
limits or supercedes the standards governing individually identifiable
health information promulgated by the Secretary of Health and Human
Services under the authority of sections 262 and 264 of the Health
Insurance Portability and Accountability Act of 1996, 42 U.S.C. 1320d-
1320d-8.


Sec. 160.2  Rule of construction.

    (a) Safe harbor. The examples in this part and the sample clauses
in the Appendix to this part are not exclusive. Compliance with an
example or use of a sample clause, to the extent applicable,
constitutes compliance with this part.
    (b) Substituted compliance. (1) Any person or entity otherwise
subject to this part that is subject to and in compliance with
Securities and Exchange Commission Regulation S-P, 17 CFR part 248,
will be deemed to be in compliance with this part.
    (2) Any commodity trading advisor otherwise subject to this part
that is registered or required to be registered as an investment
adviser in the state in

[[Page 21253]]

which it maintains its principal office and place of business as
defined in Sec. 275.203A-3 of this title, and that is subject to and in
compliance with 16 CFR part 313, will be deemed to be in compliance
with this part.


Sec. 160.3  Definitions.

    For purposes of this part, unless the context requires otherwise:
    (a) Affiliate of a futures commission merchant, commodity trading
advisor, commodity pool operator or introducing broker means any
company that controls, is controlled by, or is under common control
with a futures commission merchant, commodity trading advisor,
commodity pool operator or introducing broker that is subject to the
jurisdiction of the Commission. In addition, a futures commission
merchant, commodity trading advisor, commodity pool operator or
introducing broker subject to the jurisdiction of the Commission will
be deemed an affiliate of a company for purposes of this part if:
    (1) That company is regulated under Title V of the GLB Act by the
Federal Trade Commission or by a federal functional regulator other
than the Commission; and
    (2) Rules adopted by the Federal Trade Commission or another
federal functional regulator under Title V of the GLB Act treat the
futures commission merchant, commodity trading advisor, commodity pool
operator or introducing broker as an affiliate of that company.
    (b)(1) Clear and conspicuous means that a notice is reasonably
understandable and designed to call attention to the nature and
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. Your notice will be
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise
sentences, paragraphs and sections;
    (B) Use short explanatory sentences or bullet lists whenever
possible;
    (C) Use definite, concrete, everyday words and active voice
whenever possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever
possible; and
    (F) Avoid explanations that are imprecise and readily subject to
different interpretations.
    (ii) Designed to call attention. Your notice is designed to call
attention to the nature and significance of the information in it if
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) Use distinctive type size, style and graphic devices, such as
shading or sidebars when you combine your notice with other
information.
    (iii) Notices on web sites. If you provide notice on a web page,
you design your notice to call attention to the nature and significance
of the information in it if you use text or visual cues to encourage
scrolling down the page, if necessary to view the entire notice, and
ensure that other elements on the web site, such as text, graphics,
hyperlinks or sound, do not distract from the notice, and you either:
    (A) Place the notice on a screen that consumers frequently access,
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such
as a page on which transactions are conducted, that connects directly
to the notice and is labeled appropriately to convey the importance,
nature and relevance of the notice.
    (c) Collect means to obtain information that you organize or can
retrieve by the name of an individual or by identifying number, symbol
or other identifying particular assigned to the individual,
irrespective of the source of the underlying information.
    (d) Commission means the Commodity Futures Trading Commission.
    (e) Commodity pool operator has the same meaning as in section
1a(5) of the Commodity Exchange Act, as amended, and includes anyone
registered as such under the Act.
    (f) Commodity trading advisor has the same meaning as in section
1a(6) of the Commodity Exchange Act, as amended, and includes anyone
registered as such under the Act.
    (g) Company means any corporation, limited liability company,
business trust, general or limited partnership, association or similar
organization.
    (h)(1) Consumer means an individual who obtains or has obtained a
financial product or service from you that is to be used primarily for
personal, family or household purposes, or that individual's legal
representative.
    (2) Examples. (i) An individual is your consumer if he or she
provides nonpublic personal information to you in connection with
obtaining or seeking to obtain brokerage or advisory services, whether
or not you provide services to the individual or establish a continuing
relationship with the individual.
    (ii) An individual is not your consumer if he or she provides you
only with his or her name, address and general areas of investment
interest in connection with a request for a brochure or other
information about financial products or services.
    (iii) An individual is not your consumer if he or she has an
account with another futures commission merchant (originating futures
commission merchant) for which you provide clearing services for an
account in the name of the originating futures commission merchant.
    (iv) An individual who is a consumer of another financial
institution is not your consumer solely because you act as agent for,
or provide processing or other services to, that financial institution.
    (v) An individual is not your consumer solely because he or she has
designated you as trustee for a trust.
    (vi) An individual is not your consumer solely because he or she is
a beneficiary of a trust for which you are a trustee.
    (vii) An individual is not your consumer solely because he or she
is a participant or a beneficiary of an employee benefit plan that you
sponsor or for which you act as a trustee or fiduciary.
    (i) Consumer reporting agency has the same meaning as in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (j) Control of a company means the power to exercise a controlling
influence over the management or policies of a company whether through
ownership of securities, by contract, or otherwise. Any person who owns
beneficially, either directly or through one or more controlled
companies, more than 25 percent of the voting securities of any company
is presumed to control the company. Any person who does not own more
than 25 percent of the voting securities of a company will be presumed
not to control the company.
    (k) Customer means a consumer who has a customer relationship with
you.
    (l)(1) Customer relationship means a continuing relationship
between a consumer and you under which you provide one or more
financial products or services to the consumer that are to be used
primarily for personal, family or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a
continuing relationship with you if:
    (A) You are a futures commission merchant through whom a consumer
has opened an account, or that carries the consumer's account on a
fully-disclosed basis, or that effects or engages in commodity interest

[[Page 21254]]

transactions with or for a consumer, even if you do not hold any assets
of the consumer.
    (B) You are an introducing broker that solicits or accepts specific
orders for trades;
    (C) You are a commodity trading advisor with whom a consumer has a
contract or subscription, either written or oral, regardless of whether
the advice is standardized, or is based on, or tailored to, the
commodity interest or cash market positions or other circumstances or
characteristics of the particular consumer;
    (D) You are a commodity pool operator, and you accept or receive
from the consumer, funds, securities, or property for the purpose of
purchasing an interest in a commodity pool;
    (E) You hold securities or other assets as collateral for a loan
made to the consumer, even if you did not make the loan or do not
effect any transactions on behalf of the consumer; or
    (F) You regularly effect or engage in commodity interest
transactions with or for a consumer even if you do not hold any assets
of the consumer.
    (ii) No continuing relationship. A consumer does not have a
continuing relationship with you if:
    (A) You have acted solely as a ``finder'' for a futures commission
merchant, and you do not solicit or accept specific orders for trades;
or
    (B) You have solicited the consumer to participate in a pool or to
direct his or her account and he or she has not provided you with funds
to participate in a pool or entered into any agreement for you to
direct his or her account.
    (m) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board;
    (6) The Securities and Exchange Commission; and
    (7) The Commodity Futures Trading Commission.
    (n)(1) Financial institution means:
    (i) Any futures commission merchant, commodity trading advisor,
commodity pool operator or introducing broker that is registered with
the Commission as such or is otherwise subject to the Commission's
jurisdiction; and
    (ii) Any other institution the business of which is engaging in
financial activities as described in section 4(k) of the Bank Holding
Company Act of 1956, 12 U.S.C. 1843(k).
    (2) Financial institution does not include:
    (i) Any person or entity, other than a futures commission merchant,
commodity trading advisor, commodity pool operator or introducing
broker that, with respect to any financial activity, is subject to the
jurisdiction of the Commission under the Act.
    (ii) The Federal Agricultural Mortgage Corporation or any entity
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in
securitizations, secondary market sales (including sales of servicing
rights) or similar transactions related to a transaction of a consumer,
as long as such institutions do not sell or transfer nonpublic personal
information to a nonaffiliated third party.
    (o)(1) Financial product or service means:
    (i) Any product or service that a futures commission merchant,
commodity trading advisor, commodity pool operator, or introducing
broker could offer that is subject to the Commission's jurisdiction;
and
    (ii) Any product or service that any other financial institution
could offer by engaging in an activity that is financial in nature or
incidental to such a financial activity under section 4(k) of the Bank
Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) Financial service includes your evaluation or brokerage of
information that you collect in connection with a request or an
application from a consumer for a financial product or service.
    (p) Futures commission merchant has the same meaning as in section
1a(20) of the Commodity Exchange Act, as amended, and includes any
person registered as such under the Act.
    (q) GLB Act means the Gramm-Leach-Bliley Act (Pub. L. No. 106-102,
113 Stat. 1338 (1999)).
    (r) Introducing broker has the same meaning as in section 1a(23) of
the Commodity Exchange Act, as amended, and includes any person
registered as such under the Act.
    (s)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not
your affiliate, but nonaffiliated third party includes the other
company that jointly employs the person.
    (2) Nonaffiliated third party includes any company that is an
affiliate solely by virtue of your or your affiliate's direct or
indirect ownership or control of the company in conducting merchant
banking or investment banking activities of the type described in
section 4(k)(4)(H) or insurance company investment activities of the
type described in section 4(k)(4)(I) of the Bank Holding Company Act of
1956, 12 U.S.C. 1843(k)(4)(H) and (I).
    (t)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description or other grouping of consumers, and
publicly available information pertaining to them, that is derived
using any personally identifiable financial information that is not
publicly available information.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list
described in paragraph (t)(1)(ii) of this section or when the publicly
available information is disclosed in a manner that indicates the
individual is or has been your consumer; or
    (ii) Any list, description or other grouping of consumers, and
publicly available information pertaining to them, that is derived
without using any personally identifiable financial information that is
not publicly available information.
    (3) Examples of lists. (i) Nonpublic personal information includes
any list of individuals' names and street addresses that is derived in
whole or in part using personally identifiable financial information
that is not publicly available information, such as account numbers.
    (ii) Nonpublic personal information does not include any list of
individuals' names and addresses that contains only publicly available
information, is not derived in whole or in part using personally
identifiable financial information that is not publicly available
information, and is not disclosed in a manner that indicates that any
of the individuals on the list is a consumer of a financial
institution.
    (u)(1) Personally identifiable financial information means any
information:
    (i) A consumer provides to you to obtain a financial product or
service from you;
    (ii) About a consumer resulting from any transaction involving a
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with
providing a financial product or service to that consumer.
    (2) Examples.--(i) Information included. Personally identifiable
financial information includes:

[[Page 21255]]

    (A) Information a consumer provides to you on an application to
open a commodity trading account, invest in a commodity pool, or to
obtain another financial product or service;
    (B) Account balance information, payment history, overdraft
history, margin call history, trading history, and credit or debit card
purchase information;
    (C) The fact that an individual is or has been one of your
customers or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a
manner that indicates that the individual is or has been your consumer;
    (E) Any information you collect through an Internet ``cookie'' (an
information-collecting device from a web server); and
    (F) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial
information does not include:
    (A) A list of names and addresses of customers of an entity that is
not a financial institution; or
    (B) Information that does not identify a consumer, such as
aggregate information or blind data that does not contain personal
identifiers such as account numbers, names or addresses.
    (v)(1) Publicly available information means any information that
you reasonably believe is lawfully made available to the general public
from:
    (i) Federal, state or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be
made by federal, state or local law.
    (2) Examples.--(i) Reasonable belief.
    (A) You have a reasonable belief that information about your
consumer is made available to the general public if you have confirmed,
or your consumer has represented to you, that the information is
publicly available from a source described in paragraphs (v)(1)(i)-
(iii) of this section.
    (B) You have a reasonable belief that information about your
consumer is made available to the general public if you have taken
steps to submit the information, in accordance with your internal
procedures and policies and with applicable law, to a keeper of
federal, state or local government records that is required by law to
make the information publicly available.
    (C) You have a reasonable belief that an individual's telephone
number is lawfully made available to the general public if you have
located the telephone number in the telephone book or on an internet
listing service, or the consumer has informed you that the telephone
number is not unlisted.
    (D) You do not have a reasonable belief that information about a
consumer is publicly available solely because that information would
normally be recorded with a keeper of federal, state or local
government records that is required by law to make the information
publicly available, if the consumer has the ability in accordance with
applicable law to keep that information nonpublic, such as where a
consumer may record a deed in the name of a blind trust.
    (ii) Government records. Publicly available information in
government records includes information in government real estate
records and security interest filings.
    (iii) Widely distributed media. Publicly available information from
widely distributed media includes information from a telephone book, a
television or radio program, a newspaper, or a web site that is
available to the general public on an unrestricted basis. A web site is
not restricted merely because an Internet service provider or a site
operator requires a fee or password, so long as access is available to
the general public.
    (w) You means:
    (1) Any futures commission merchant;
    (2) Any commodity trading advisor;
    (3) Any commodity pool operator; and
    (4) Any introducing broker subject to the jurisdiction of the
Commission.

Subpart A--Privacy and Opt Out Notices


Sec. 160.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and
conspicuous notice that accurately reflects your privacy policies and
practices to:
    (1) Customer. An individual who becomes your customer, not later
than when you establish a customer relationship, except as provided in
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic
personal information about the consumer to any nonaffiliated third
party, if you make such a disclosure other than as authorized by
Secs. 160.14 and 160.15.
    (b) When initial notice to a consumer is not required. You are not
required to provide an initial notice to a consumer under paragraph (a)
of this section if:
    (1) You do not disclose any nonpublic personal information about
the consumer to any nonaffiliated third party other than as authorized
by Secs. 160.14 and 160.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship.
    (1) General rule. You establish a customer relationship when you
and the consumer enter into a continuing relationship.
    (2) Examples of establishing customer relationship. You establish a
customer relationship when the consumer:
    (i) Instructs you to execute a commodity interest transaction for
the consumer;
    (ii) Opens a commodity interest account through an introducing
broker or with a futures commission merchant that clears transactions
for its customers through you on a fully-disclosed basis;
    (iii) Transmits specific orders for commodity interest transactions
to you that you pass on to a futures commission merchant for execution,
if you are an introducing broker;
    (iv) Enters into an advisory contract or subscription with you,
whether in writing or orally, and whether you provide standardized, or
individually tailored commodity trading advice based on the customer's
commodity interest or cash market positions or other circumstances or
characteristics, if you are a commodity trading adviser; or
    (v) Provides to you funds, securities, or property for an interest
in a commodity pool, if you are a commodity pool operator.
    (d) Existing customers. When an existing customer obtains a new
financial product or service from you that is to be used primarily for
personal, family or household purposes, you satisfy the initial notice
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice under Sec. 160.8 that
covers the customer's new financial product or service; or
    (2) If the initial, revised or annual notice that you most recently
provided to that customer was accurate with respect to the new
financial product or service, you do not need to provide a new privacy
notice under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may
provide the initial notice required by paragraph (a)(1) of this section
within a reasonable time after you establish a customer relationship
if:
    (i) Establishing the customer relationship is not at the customer's
election;
    (ii) Providing notice not later than when you establish a customer
relationship would substantially delay the customer's transaction and
the

[[Page 21256]]

customer agrees to receive the notice at a later time;
    (iii) A nonaffiliated financial institution establishes a customer
relationship between you and a consumer without your prior knowledge;
or
    (iv) You have established a customer relationship with a customer
in a bulk transfer in accordance with Sec. 1.65, if you are a
transferee futures commission merchant or introducing broker.
    (2) Examples of exceptions.--(i) Not at customer's election.
Establishing a customer relationship is not at the customer's election
if you acquire the customer's commodity interest account from another
financial institution and the customer does not have a choice about
your acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice
not later than when you establish a customer relationship would
substantially delay the customer's transaction when you and the
individual agree over the telephone to enter into a customer
relationship involving prompt delivery of the financial product or
service.
    (iii) No substantial delay of customer's transaction. Providing
notice not later than when you establish a customer relationship would
not substantially delay the customer's transaction when the
relationship is initiated in person at your office or through other
means by which the customer may view the notice, such as on a web site.
    (f) Delivery of notice. When you are required by this section to
deliver an initial privacy notice, you must deliver it according to the
provisions of Sec. 160.9. If you use a short-form initial notice for
non-customers according to Sec. 160.6(d), you may deliver your privacy
notice as provided in section Sec. 160.6(d)(3).


Sec. 160.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous
notice to customers that accurately reflects your privacy policies and
practices not less than annually during the life of the customer
relationship. Annually means at least once in any period of 12
consecutive months during which that relationship exists. You may
define the 12-consecutive-month period, but you must apply it to the
customer on a consistent basis.
    (2) Example. You provide notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual
notice to the customer once in each calendar year following the
calendar year in which you provided the initial notice. For example, if
a customer opens an account on any day of year 1, you must provide an
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required
to provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) The individual's commodity interest account is closed;
    (ii) The individual's advisory contract or subscription is
terminated or expires; or
    (iii) The individual has redeemed all of his or her units in your
pool.
    (c) Delivery of notice. When you are required by this section to
deliver an annual privacy notice, you must deliver it in the manner
provided by Sec. 160.9.


Sec. 160.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices
that you provide under Secs. 160.4, 160.5 and 160.8 must include each
of the following items of information that applies to you or to the
consumers to whom you send your privacy notice, in addition to any
other information you wish to provide:
    (1) The categories of nonpublic personal information that you
collect;
    (2) The categories of nonpublic personal information that you
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to
whom you disclose nonpublic personal information, other than those
parties to whom you disclose information under Secs. 160.14 and 160.15;
    (4) The categories of nonpublic personal information about your
former customers that you disclose and the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information about your former customers, other than those parties to
whom you disclose information under Secs. 160.14 and 160.15;
    (5) If you disclose nonpublic personal information to a
nonaffiliated third party under Sec. 160.13 (and no other exception
applies to that disclosure), a separate statement of the categories of
information you disclose and the categories of third parties with whom
you have contracted;
    (6) An explanation of the consumer's rights under Sec. 160.10(a) to
opt out of the disclosure of nonpublic personal information to
nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right at that time;
    (7) Any disclosures that you make under Sec. 603(d)(2)(A)(iii) of
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is,
notices regarding the ability to opt out of disclosures of information
among affiliates);
    (8) Your policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this
section.
    (b) Description of nonaffiliated third parties subject to
exceptions. If you disclose nonpublic personal information to third
parties as authorized under Secs. 160.14 and 160.15, you are not
required to list those exceptions in the initial or annual privacy
notices required by Secs. 160.4 and 160.5. When describing the
categories with respect to those parties, you are required to state
only that you make disclosures to other nonaffiliated parties as
permitted by law.
    (c) Examples.--(1) Categories of nonpublic personal information
that you collect. You satisfy the requirement to categorize the
nonpublic personal information that you collect if you list the
following categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your
affiliates;
    (iii) Information about the consumer's transactions with
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information you disclose.
    (i) You satisfy the requirement to categorize the nonpublic
personal information you disclose if you list the categories described
in paragraph (e)(1) of this section, as applicable, and a few examples
to illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic
personal information about consumers that you collect, you may simply
state that fact without describing the categories or examples of the
nonpublic personal information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to
whom you disclose. You satisfy the requirement to categorize the
affiliates and nonaffiliated third parties to whom you disclose
nonpublic personal information if you list the following categories, as
applicable, and a few examples to illustrate the types of third parties
in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint
marketers. If you disclose nonpublic personal

[[Page 21257]]

information under the exception in Sec. 160.13 to a nonaffiliated third
party to market products or services that you offer alone or jointly
with another financial institution, you satisfy the disclosure
requirement of paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you
disclose, using the same categories and examples you used to meet the
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with which you have a joint marketing
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to
reserve the right to disclose, nonpublic personal information to
affiliates or nonaffiliated third parties except as authorized under
Secs. 160.14 and 160.15, you may simply state that fact, in addition to
information you must provide under paragraphs (a)(1), (a)(8), (a)(9)
and (b) of this section.
    (6) Confidentiality and security. You describe your policies and
practices with respect to protecting the confidentiality and security
of nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to
the information; and
    (ii) State whether you have security practices and procedures in
place to ensure the confidentiality of the information in accordance
with your policy. You are not required to describe technical
information about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-
customers.
    (1) You may satisfy the initial notice requirements in
Secs. 160.4(a)(2), 160.7(b) and 160.7(c) for a consumer who is not a
customer by providing a short-form initial notice at the same time as
you deliver an opt out notice as required in 160.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain
your privacy notice.
    (3) You must deliver your short-form initial notice according to
Sec. 160.9. You are not required to deliver your privacy notice with
your short-form initial notice. You instead may simply provide the
consumer a reasonable means to obtain your privacy notice. If a
consumer who receives your short-form notice requests your privacy
notice, you must deliver your privacy notice according to Sec. 160.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable
means by which a consumer may obtain a copy of your privacy notice if
you:
    (i) Provide a toll-free telephone number that the consumer may call
to request the notice; or
    (ii) For a consumer who conducts business in person at your office,
maintain copies of the notice on hand that you provide to the consumer
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates and nonaffiliated third parties to
whom you reserve the right in the future to disclose, but to whom you
do not currently disclose, nonpublic personal information.
    (f) Sample clauses. Sample clauses illustrating some of the notice
content required by this section are included in the Appendix of this
part.


Sec. 160.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an
opt out notice under Sec. 160.10(a), you must provide a clear and
conspicuous notice to each of your consumers that accurately explains
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic
personal information about your consumer to a nonaffiliated third
party;
    (ii) That the consumer has the right to opt out of that disclosure;
and
    (iii) A reasonable means by which the consumer may exercise the opt
out right.
    (2) Examples.--(i) Adequate opt out notice. You provide adequate
notice that the consumer can opt out of the disclosure of nonpublic
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal
information that you disclose or reserve the right to disclose, and all
of the categories of nonaffiliated third parties to which you disclose
the information, as described in Sec. 160.6(a)(2) and (3), and state
that the consumer can opt out of the disclosure of that information;
and
    (B) Identify the financial products or services that the consumer
obtains from you, either singly or jointly, to which the opt out
direction would apply.
    (ii) Reasonable means to opt out. You provide a reasonable means to
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can
be sent via electronic mail or a process at your web site, if the
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable
means of opting out if:
    (A) The only means of opting out is for the consumer to write his
or her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice
subsequent to the initial notice is to use a check-off box that you
provided with the initial notice but did not include with the
subsequent notice.
    (iv) Specific opt out means. You may require each consumer to opt
out through a specific means, as long as that means is reasonable for
the consumer.
    (b) Same form as initial notice permitted. You may provide the opt
out notice together with or on the same written or electronic form, as
the initial notice you provide in accordance with Sec. 160.4.
    (c) Initial notice required when opt out notice delivered
subsequent to initial notice. If you provide the opt out notice after
the initial notice in accordance with Sec. 160.4, you must also include
a copy of the initial notice with the opt out notice in writing, or, if
the consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly
obtain a financial product or service from you, you may provide a
single opt out notice; however, you must honor a request from one or
more joint account holders for a separate opt out notice. Your opt out
notice must explain how you will treat an opt out direction by a joint
consumer.
    (2) Any of the joint consumers may exercise the right to opt out.
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you
must permit one of the joint consumers to opt out on behalf of all of
the joint consumers.

[[Page 21258]]

    (4) You may not require all joint consumers to opt out before you
implement any opt out direction.
    (5) Example. If John and Mary have a joint trading account with you
and arrange for you to send statements to John's address, you may do
any of the following, but you must explain in your opt out notice which
opt out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must
accept an opt out direction from either John or Mary;
    (ii) Treat an opt out direction by either John or Mary as applying
to the entire account. If you do so, and John opts out, you may not
require Mary to opt out as well before implementing John's opt out
direction; or
    (iii) Permit John and Mary to make different opt out directions. If
you do so:
    (A) You must permit John and Mary to opt out for each other.
    (B) If both opt out, you must permit both to notify you in a single
response (such as on a form or through a telephone call).
    (C) If John opts out and Mary does not, you may only disclose
nonpublic personal information about Mary, but not about John, and not
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's
opt out direction as soon as reasonably practicable after you receive
it.
    (f) Continuing right to opt out. A consumer may exercise the right
to opt out at any time.
    (g) Duration of consumer's opt out direction.
    (1) A consumer's direction to opt out under this section is
effective until the consumer revokes it in writing, either by hard copy
or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out
direction continues to apply to the nonpublic personal information that
you collected during or related to that relationship. If the individual
subsequently establishes a new customer relationship with you, the opt
out direction that applied to the former relationship does not apply to
the new relationship.
    (h) Delivery. When you are required by this section to deliver an
opt out notice, you must deliver it according to Sec. 160.9.


Sec. 160.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you
must not, directly or through any affiliate, disclose any nonpublic
personal information about a consumer to a nonaffiliated third party
other than as described in the initial notice that you provided to that
consumer under Sec. 160.4, unless:
    (1) You have provided to the consumer a clear and conspicuous
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Secs. 160.13,
160.14, and 160.15, you must provide a revised notice before you:
    (i) Disclose a new category of nonpublic personal information to
any nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former
customer to a nonaffiliated third party, if that former customer has
not had the opportunity to exercise an opt out right regarding that
disclosure.
    (2) A revised notice is not required if you disclose nonpublic
personal information to a new nonaffiliated third party that you
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy
notice by this section, you must deliver it according to Sec. 160.9.


Sec. 160.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices
and opt out notices, including short-form initial notices that this
part requires so that each consumer can reasonably be expected to
receive actual notice in writing either in hard copy or, if the
consumer agrees, electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of
the consumer; or
    (iii) For the consumer who conducts transactions electronically,
post the notice on the electronic site and require the consumer to
acknowledge receipt of the notice as a necessary step to obtaining a
particular financial service or product.
    (2) Examples of unreasonable expectation of actual notice. You may
not, however, reasonably expect that a consumer will receive actual
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not
obtain a financial product or service from you electronically.
    (c) Annual notices only. You may reasonably expect that a consumer
will receive actual notice of your annual privacy notice if:
    (1) The customer uses your web site to access financial products
and services electronically and agrees to receive notices at the web
site and you post your current privacy notice continuously in a clear
and conspicuous manner on the web site; or
    (2) The customer has requested that you refrain from sending any
information regarding the customer relationship, and your current
privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. You may not provide
any notice required by this part solely by orally explaining the
notice, either in person or over the telephone.
    (e) Retention or accessibility of notices for customers.
    (1) For customers only, you must provide the initial notice
required by Sec. 160.4(a)(1), the annual notice required by
Sec. 160.5(a), and the revised notice required by Sec. 160.8, so that
the customer can retain them or obtain them later in writing or, if the
customer agrees, electronically.
    (2) Examples of retention or accessibility. You provide a privacy
notice to the customer so that the customer can retain it or obtain it
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of
the customer; or
    (iii) Make your current privacy notice available on a web site (or
a link to another web site) for the customer who obtains a financial
product or service electronically and agrees to receive the notice at
the web site.
    (f) Joint notice with other financial institutions. You may provide
a joint notice from you and one or more of your affiliates or other
financial institutions, as identified in the notice, as long as the
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more customers jointly obtain a
financial

[[Page 21259]]

product or service from you, you may satisfy the initial, annual, and
revised notice requirements of paragraph (a) of this section by
providing one notice to those customers jointly; however, you must
honor a request by one or more joint account holders for a separate
notice.

Subpart B--Limits on Disclosures


Sec. 160.10  Limits on disclosure of nonpublic personal information to
nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in
this part, you may not, directly or through any affiliate, disclose any
nonpublic personal information about a consumer to a nonaffiliated
third party unless:
    (i) You have provided to the consumer an initial notice as required
under Sec. 160.4;
    (ii) You have provided to the consumer an opt out notice as
required in Sec. 160.7;
    (iii) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer
that you not disclose nonpublic personal information about that
consumer to a nonaffiliated third party, other than as permitted by
Secs. 160.13, 160.14 and 160.15.
    (3) Examples of reasonable opportunity to opt out. You provide a
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of
this section to the consumer and allow the consumer to opt out by
mailing a form, calling a toll-free telephone number, or any other
reasonable means within 30 days after the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with
you and agrees to receive the notices required in paragraph (a)(1) of
this section electronically, and you allow the customer to opt out by
any reasonable means within 30 days after the date that the customer
acknowledges receipt of the notices in conjunction with opening the
account.
    (iii) Isolated transaction with consumer. For an isolated
transaction with a consumer, you provide the consumer with a reasonable
opportunity to opt out if you provide the notices required in paragraph
(a)(1) of this section at the time of the transaction and request that
the consumer decide, as a necessary part of the transaction, whether to
opt out before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic
personal information.
    (1) You must comply with this section, regardless of whether you
and the consumer have established a customer relationship.
    (2) Unless you comply with this section, you may not, directly or
through any affiliate, disclose any nonpublic personal information
about a consumer that you have collected, regardless of whether you
have collected it before or after receiving the direction to opt out
from the consumer.
    (c) Partial opt out. You may allow a consumer to select certain
nonpublic personal information or certain nonaffiliated third parties
with respect to which the consumer wishes to opt out.


Sec. 160.11  Limits on redisclosure and reuse of information.

    (a) (1) Information you receive under an exception. If you receive
nonpublic personal information from a nonaffiliated financial
institution under an exception in Secs. 160.14 or 160.15, your
disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliate of the
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your
affiliates may, in turn, disclose and use the information only to the
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an
exception in Sec. 160.14 or 160.15 in the ordinary course of business
to carry out the activity covered by the exception under which you
received the information.
    (2) Example. If you receive a customer list from a nonaffiliated
financial institution in order to provide account-processing services
under the exception in Sec. 160.14(a), you may disclose that
information under any exception in Secs. 160.14 or 160.15 in the
ordinary course of business in order to provide those services. For
example, you could disclose that information in response to a properly
authorized subpoena or in the ordinary course of business to your
attorneys, accountants, and auditors. You could not disclose that
information to a third party for marketing purposes or use that
information for your own marketing purposes.
    (b)(1) Information you receive outside of an exception. If you
receive nonpublic personal information from a nonaffiliated financial
institution other than under an exception in Secs. 160.14 or 160.15,
you may disclose the information only:
    (i) To the affiliates of the financial institution from which you
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose
the information only to the extent that you can disclose the
information; and
    (iii) To any other person, if the disclosure would be lawful if
made directly to that person by the financial institution from which
you received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated
financial institution outside of the exceptions in Secs. 160.14 and
160.15:
    (i) You may use that list for your own purposes;
    (ii) You may disclose that list to another nonaffiliated third
party only if the financial institution from which you purchased the
list could have lawfully disclosed that list to that third party. That
is, you may disclose the list in accordance with the privacy policy of
the financial institution from which you received the list as limited
by the opt out direction of each consumer whose nonpublic personal
information you intend to disclose, and you may disclose the list in
accordance with an exception in Secs. 160.14 and 160.15, such as in the
ordinary course of business to your attorneys, accountants, or
auditors.
    (c) Information you disclose under an exception. If you disclose
nonpublic personal information to a nonaffiliated third party under an
exception in Secs. 160.14 or 160.15, the third party may disclose and
use that information only as follows:
    (1) The third party may disclose the information to your
affiliates;
    (2) The third party may disclose the information to its affiliates,
but its affiliates may, in turn, disclose and use the information only
to the extent that the third party may disclose and use the
information; and
    (3) The third party may disclose and use the information pursuant
to an exception in Secs. 160.14 or 160.15 in the ordinary course of
business to carry out the activity covered by the exception under which
it received the information.
    (d) Information you disclose outside of an exception. If you
disclose nonpublic personal information to a nonaffiliated third party
other than under an exception in Secs. 160.14 or 160.15, the third
party may disclose the information only:
    (1) To your affiliates;

[[Page 21260]]

    (2) To its affiliates, but its affiliates, in turn, may disclose
the information only to the extent the third party can disclose the
information; and
    (3) To any other person, if the disclosure would be lawful if you
made it directly to that person.


Sec. 160.12  Limits on sharing account number information for marketing
purposes.

    (a) General prohibition on disclosure of account numbers. You must
not, directly or through an affiliate, disclose, other than to a
consumer reporting agency, an account number or similar form of access
number or access code for a consumer's credit card account, deposit
account or transaction account to any nonaffiliated third party for use
in telemarketing, direct mail marketing or other marketing through
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you
disclose an account number or similar form of access number or access
code:
    (1) To your agent or service provider solely in order to perform
marketing for your own services or products, as long as the agent or
service provider is not authorized to directly initiate charges to the
account; or
    (2) To a participant in a private-label credit card program or an
affinity or similar program where the participants in the program are
identified to the customer when the customer enters into the program.
    (c) Example. An account number, or similar form of access number or
access code, does not include a number or code in an encrypted form, as
long as you do not provide the recipient with a means to decode the
number or code.

Subpart C--Exceptions


Sec. 160.13  Exception to opt out requirements for service providers
and joint marketing.

    (a) General rule. (1) The opt out requirements in Secs. 160.7 and
160.10 do not apply when you provide nonpublic personal information to
a nonaffiliated third party to perform services for you or functions on
your behalf if you:
    (i) Provide the initial notice in accordance with Sec. 160.4; and
    (ii) Enter into a contractual agreement with the third party that
prohibits the third party from disclosing or using the information
other than to carry out the purposes for which you disclosed the
information, including use under an exception in Secs. 160.14 or 160.15
in the ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under
this section to a financial institution with which you perform joint
marketing, your contractual agreement with that institution meets the
requirements of paragraph (a)(1)(ii) of this section if it prohibits
the institution from disclosing or using the nonpublic personal
information except as necessary to carry out the joint marketing or
under an exception in Secs. 160.14 or 160.15 in the ordinary course of
business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a
nonaffiliated third party performs for you under paragraph (a) of this
section may include marketing of your own products or services or
marketing of financial products or services offered pursuant to joint
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section,
joint agreement means a written contract pursuant to which you and one
or more financial institutions jointly offer, endorse or sponsor a
financial product or service.


Sec. 160.14  Exceptions to notice and opt out requirements for
processing and servicing transactions.

    (a) Exceptions for processing and servicing transactions at
consumer's request. The requirements for initial notice in
Sec. 160.4(a)(2), for the opt out in Secs. 160.7 and 160.10, and for
initial notice in Sec. 160.13 in connection with service providers and
joint marketing, do not apply if you disclose nonpublic personal
information as necessary to effect, administer, or enforce a
transaction that a consumer requests or authorizes, or in connection
with:
    (1) Processing or servicing a financial product or service that a
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or
with another entity as part of an extension of credit on behalf of such
entity as part of a private label credit card program or other
extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale or
similar transaction related to a transaction of the consumer.
    (b) Necessary to effect, administer or enforce a transaction means
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to
enforce your rights or the rights of other persons engaged in carrying
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business
of which the transaction is a part, and record, service or maintain the
consumer's account in the ordinary course of providing the financial
service or financial product;
    (ii) To administer or service benefits or claims relating to the
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement or other record of the
transaction, or information on the status or value of the financial
service or financial product to the consumer or the consumer's agent or
broker;
    (iv) To accrue or recognize incentives or bonuses associated with
the transaction that are provided by you or any other party;
    (v) In connection with:
    (A) The authorization, settlement, billing, processing, clearing,
transferring, reconciling or collection of amounts charged, debited or
otherwise paid using a debit, credit or other payment card, check or
account number, or by other payment means;
    (B) The transfer of receivables, accounts or interests therein; or
    (C) The audit of debit, credit or other payment information.


Sec. 160.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to notice and opt out requirements. The requirements
for initial notice in Sec. 160.4(a)(2), for the opt out in Secs. 160.7
and 160.10, and for initial notice in Sec. 160.13 in connection with
service providers and joint marketing do not apply when you disclose
nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security or your records
pertaining to the consumer, service, product or transaction;
    (ii) To protect against or prevent actual or potential fraud,
unauthorized transactions, claims or other liability;
    (iii) For required institutional risk control or for resolving
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on
behalf of the consumer;
    (3) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, agencies that are rating
you, persons that are assessing your compliance with

[[Page 21261]]

industry standards, and your attorneys, accountants and auditors;
    (4) To the extent specifically permitted or required under other
provisions of law and in accordance with the Right to Financial Privacy
Act of 1978, 12 U.S.C. 3401 et seq., to law enforcement agencies
(including a federal functional regulator, the Secretary of the
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records
and Reports on Monetary Instruments and Transactions) and 12 U.S.C.
Chapter 21 (Financial Recordkeeping), a State insurance authority, with
respect to any person domiciled in that insurance authority's state
that is engaged in providing insurance, and the Federal Trade
Commission), self-regulatory organizations, or for an investigation on
a matter related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair
Credit Reporting Act, 15 U.S.C. 1681 et seq.; or
    (ii) From a consumer report reported by a consumer reporting
agency;
    (6) In connection with a proposed or actual sale, merger, transfer
or exchange of all or a portion of a business or operating unit if the
disclosure of nonpublic personal information concerns solely consumers
of such business or unit; or
    (7)(i) To comply with federal, state or local laws, rules and other
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal or
regulatory investigation, or subpoena or summons by federal, state or
local authorities; or
    (iii) To respond to judicial process or government regulatory
authorities having jurisdiction over you for examination, compliance or
other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer
may specifically consent to your disclosure to a nonaffiliated mortgage
lender of the value of the assets in the customer's account so that the
lender can evaluate the consumer's application for a mortgage loan.
    (2) A consumer may revoke consent by subsequently exercising the
right to opt out of future disclosures of nonpublic personal
information as permitted under Sec. 160.7(f).

Subpart D--Relation To Other Laws; Effective Date


Sec. 160.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit or
supersede the operation of the Fair Credit Reporting Act, 15 U.S.C.
1681 et seq., and no inference shall be drawn on the basis of the
provisions of this part regarding whether information is transaction or
experience information under section 603 of that Act.


Sec. 160.17  Relation to state laws.

    (a) In general. This part shall not be construed as superseding,
altering or affecting any statute, regulation, order or interpretation
in effect in any state, except to the extent that such state statute,
regulation, order or interpretation is inconsistent with the provisions
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under state law. For purposes of this
section, a state statute, regulation, order or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Federal Trade Commission, after consultation with the Commission,
on the Federal Trade Commission's own motion, or upon the petition of
any interested party.


Sec. 160.18  Effective date; compliance date; transition rule.

    (a) Effective date. This part is effective on June 21, 2001. In
order to provide sufficient time for you to establish policies and
systems to comply with the requirements for this part, the compliance
date for this part is June 21, 2002.
    (b)(1) Notice requirement for consumers who are your customers on
the effective date. By March 31, 2002, you must have provided an
initial notice, as required by Sec. 160.4, to consumers who are your
customers on June 21, 2001.
    (2) Example. You provide an initial notice to consumers who are
your customers on March 31, 2002 if, by that date, you have established
a system for providing an initial notice to all new customers and have
mailed the initial notice to all your existing customers.
    (c) One-year grandfathering of service agreements. Until March 31,
2003, a contract that you have entered into with a nonaffiliated third
party to perform services for you or functions on your behalf satisfies
the provisions of Sec. 160.13(a)(1)(ii) even if the contract does not
include a requirement that the third party maintain the confidentiality
of nonpublic personal information, as long as you entered into the
agreement on or before March 31, 2002.


Secs. 160.19-160.29  [Reserved]


Sec. 160.30  Procedures to safeguard customer records and information.

    Every futures commission merchant, commodity trading advisor,
commodity pool operator and introducing broker subject to the
jurisdiction of the Commission must adopt policies and procedures that
address administrative, technical and physical safeguards for the
protection of customer records and information. These policies and
procedures must be reasonably designed to:
    (a) Insure the security and confidentiality of customer records and
information;
    (b) Protect against any anticipated threats or hazards to the
security or integrity of customer records and information; and
    (c) Protect against unauthorized access to or use of customer
records or information that could result in substantial harm or
inconvenience to any customer.

Appendix to Part 160--Sample Clauses

    Financial institutions, including a group of financial holding
company affiliates that use a common privacy notice, may use the
following sample clauses, if the clause is accurate for each
institution that uses the notice. Note that disclosure of certain
information, such as assets, income and information from a consumer
reporting agency, may give rise to obligations under the Fair Credit
Reporting Act, such as a requirement to permit a consumer to opt out
of disclosures to affiliates or designation as a consumer reporting
agency if disclosures are made to nonaffiliated third parties.

A-1--Categories of Information You Collect (All Institutions)

    You may use this clause, as applicable, to meet the requirement
of Sec. 160.6(a)(1) to describe the categories of nonpublic personal
information you collect.

Sample Clause A-1

    We collect nonpublic personal information about you from the
following sources:
     Information we receive from you on applications or
other forms;
     Information about your transactions with us, our
affiliates or others; and
     Information we receive from a consumer reporting
agency.

A-2--Categories of Information You Disclose (Institutions That Disclose
Outside of the Exceptions)

    You may use one of these clauses, as applicable, to meet the
requirement of Sec. 160.6(a)(2) to describe the categories of
nonpublic personal information you disclose. You may use these
clauses if you disclose nonpublic personal information other than as
permitted by the exceptions in Secs. 160.13, 160.14 and 160.15.

[[Page 21262]]

Sample Clause A-2, Alternative 1

    We may disclose the following kinds of nonpublic personal
information about you:
     Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets and income''];
     Information about your transactions with us, our
affiliates or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions
and credit card usage'']; and
     Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].

Sample Clause A-2, Alternative 2

    We may disclose all of the information that we collect, as
described [describe location in the notice, such as ``above'' or
``below''].

A-3--Categories of Information You Disclose and Parties to Whom You
Disclose (Institutions That Do Not Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirements
of Secs. 160.6(a)(2), (3) and (4) to describe the categories of
nonpublic personal information about customers and former customers
that you disclose and the categories of affiliates and nonaffiliated
third parties to whom you disclose. You may use this clause if you
do not disclose nonpublic personal information to any party, other
than as is permitted by the exceptions in Secs. 160.14 and 160.15.

Sample Clause A-3

    We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by law.

A-4--Categories of Parties to Whom You Disclose (Institutions That
Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirement
of Sec. 160.6(a)(3) to describe the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information. You may use this clause if you disclose nonpublic
personal information other than as permitted by the exceptions in
Secs. 160.13, 160.14 and 160.15, as well as when permitted by the
exceptions in Secs. 160.14 and 160.15.

Sample Clause A-4

    We may disclose nonpublic personal information about you to the
following types of third parties:
     Financial service providers, such as [provide
illustrative examples, such as ``mortgage bankers''];
     Non-financial companies, such as [provide illustrative
examples, such as ``retailers, direct marketers, airlines and
publishers'']; and
     Others, such as [provide illustrative examples, such as
``non-profit organizations''].
    We may also disclose nonpublic personal information about you to
nonaffiliated third parties as permitted by law.

A-5--Service Provider/Joint Marketing Exception

    You may use one of these clauses, as applicable, to meet the
requirements of Sec. 160.6(a)(5) related to the exception for
service providers and joint marketers in Sec. 160.13. If you
disclose nonpublic personal information under this exception, you
must describe the categories of nonpublic personal information you
disclose and the categories of third parties with whom you have
contracted.

Sample Clause A-5, Alternative 1

    We may disclose the following information to companies that
perform marketing services on our behalf or to other financial
institutions with which we have joint marketing agreements:
     Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets and income''];
     Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions
and credit card usage'']; and
     Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].

Sample Clause A-5, Alternative 2

    We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with which we have joint marketing
agreements.

A-6--Explanation of Opt Out Right (Institutions That Disclose Outside
of the Exceptions)

    You may use this clause, as applicable, to meet the requirement
of Sec. 160.6(a)(6) to provide an explanation of the consumer's
right to opt out of the disclosure of nonpublic personal information
to nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right. You may use this clause if you
disclose nonpublic personal information other than as permitted by
the exceptions in Secs. 160.13, 160.14 and 160.15.

Sample Clause A-6

    If you prefer that we not disclose nonpublic personal
information about you to nonaffiliated third parties you may opt out
of those disclosures; that is, you may direct us not to make those
disclosures (other than disclosures permitted or required by law).
If you wish to opt out of disclosures to nonaffiliated third
parties, you may [describe a reasonable means of opting out, such as
``call the following toll-free number: (insert number)''].

A-7--Confidentiality and Security (All Institutions)

    You may use this clause, as applicable, to meet the requirement
of Sec. 160.6(a)(8) to describe your policies and practices with
respect to protecting the confidentiality and security of nonpublic
personal information.

Sample Clause A-7

    We restrict access to nonpublic personal information about you
to [provide an appropriate description, such as ``those employees
who need to know that information to provide products or services to
you'']. We maintain physical, electronic and procedural safeguards
that comply with federal standards to safeguard your nonpublic
personal information.

    Dated: April 20, 2001.

    By the Commission.
Catherine D. Dixon,
Assistant Secretary.
[FR Doc. 01-10398 Filed 4-26-01; 8:45 am]
BILLING CODE 6351-01-U