Financial Industry Regulatory Authority (FINRA) Practice Exam

What is the purpose of the SEC's Regulation S-P?

1. To prevent insider trading

2. To protect customer privacy

3. To ensure fair disclosure of financial information

4. To regulate credit reporting agencies

The correct answer is: To protect customer privacy

The purpose of the SEC's Regulation S-P is to protect customer privacy. This regulation implements provisions of the Gramm-Leach-Bliley Act and requires financial institutions, including broker-dealers and investment advisers, to establish policies and procedures for safeguarding the nonpublic personal information of customers. It mandates that firms disclose their privacy policies to customers and provides customers with the right to opt-out of having their information shared with nonaffiliated third parties. By focusing on customer privacy, Regulation S-P creates a framework aimed at ensuring that sensitive personal information is not misused or disclosed without appropriate consent. Other options encompass different aspects of regulatory oversight. Insider trading is governed by other SEC regulations, while fair disclosure of financial information is addressed by Regulation FD. Regulation on credit reporting agencies falls under separate acts and regulations, thus highlighting the targeted focus of Regulation S-P on protecting individual privacy within financial services.