[Federal Register Volume 66, Number 82 (Friday, April 27, 2001)]
[Rules and Regulations]
[Pages 21236-21262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10398]



[[Page 21235]]

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Part IV





Commodity Futures Trading Commission





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17 CFR Part 160



Privacy of Consumer Financial Information; Final Rule

Federal Register / Vol. 66 , No. 82 / Friday, April 27, 2001 / Rules 
and Regulations

[[Page 21236]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 160

RIN 3038-AB68


Privacy of Consumer Financial Information

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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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: 
(<a href="/cdn-cgi/l/email-protection#9fccd1feebf7fef1dffcf9ebfcb1f8f0e9"><span class="__cf_email__" data-cfemail="e6b5a887928e8788a685809285c8818990">[email protected]</span></a>), (<a href="/cdn-cgi/l/email-protection#1e5c4c71647b707c7b6c795e7d786a7d30797168"><span class="__cf_email__" data-cfemail="5e1c0c31243b303c3b2c391e3d382a3d70393128">[email protected]</span></a>), (<a href="/cdn-cgi/l/email-protection#743a2d151a1b12071f0d34171200175a131b02"><span class="__cf_email__" data-cfemail="e9a7b08887868f9a8290a98a8f9d8ac78e869f">[email protected]</span></a>), or 
(<a href="/cdn-cgi/l/email-protection#c8839cbaa9a6e59cbaa7a6af88abaebcabe6afa7be"><span class="__cf_email__" data-cfemail="a6edf2d4c7c88bf2d4c9c8c1e6c5c0d2c588c1c9d0">[email protected]</span></a>).

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\
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    \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).
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    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.
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    \5\ Privacy of Customer Information, 66 FR 15550 (Mar. 19, 
2001).
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    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.
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    \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.
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    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\
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    \8\ See 65 FR 82462 (Dec. 28, 2000).
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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.
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    \9\ Compare 65 FR at 35227 (OCC rules) with 65 FR at 40363 (SEC 
rules).
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    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\
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    \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.
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    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\
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    \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.
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    (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.
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    \14\ See, e.g., 12 CFR 40.3(b) (OCC rules) and 17 CFR 248.3(c) 
(SEC rules).
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    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.
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    \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.
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    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.
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    \17\ Section 1603.(b)(2)(iii).
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    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.
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    \18\ The definition uses language from the Privacy Act of 1974, 
5 U.S.C. 552a.
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    (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.
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    \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.
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    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.
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    \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\
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    \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.
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    (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.
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    \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.
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    (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.
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    \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\
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    \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.
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    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.
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    \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.
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    \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.
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    \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\
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    \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.
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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\
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    \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\
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    \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\
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    \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\
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    \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\
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    \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\
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    \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.
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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:
    <bullet> Information we receive from you on applications or 
other forms;
    <bullet> Information about your transactions with us, our 
affiliates or others; and
    <bullet> 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:
    <bullet> 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''];
    <bullet> 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
    <bullet> 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:
    <bullet> Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers''];
    <bullet> Non-financial companies, such as [provide illustrative 
examples, such as ``retailers, direct marketers, airlines and 
publishers'']; and
    <bullet> 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:
    <bullet> 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''];
    <bullet> 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
    <bullet> 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


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