SEC Risk Alert Highlights Firms' Identity Theft Failures

The Securities and Exchange Commission’s exam division has discovered broker-dealer and advisor infractions related to its Identity Theft Red Flags Rule, Regulation S-ID, which the agency said Monday may leave retail customers vulnerable to identity theft and financial loss.

In a just-released risk alert, the agency explains that Reg S-ID applies to SEC-regulated entities that qualify as financial institutions or creditors under the Fair Credit Reporting Act and requires SEC-regulated financial institutions and creditors to determine whether they offer or maintain covered accounts.

SEC-regulated entities that are likely to qualify as financial institutions or creditors and maintain covered accounts include most registered broker-dealers; registered investment companies that allow individuals to wire transfers to other parties or that offer check writing privileges; and some registered investment advisors who can direct transfers or payments from individual accounts to third parties based on the individual’s instructions or who act as agents on behalf of individuals.