Regulation S-P and Regulation S

Regulation S-P

Regulation S-P focuses on protecting the personal and private information of customers of financial firms. Because firms collect and store so much data electronically, they must take steps to safeguard customer privacy.

Regulation S-P also clarifies what counts as private (non-public) information. Some examples are straightforward, such as Social Security numbers, suitability information, and account balances. Other sources - like data collected through internet cookies - may be less obvious, but they can still be considered non-public information. The key point is that all non-public customer information must be protected appropriately.

In addition to identifying and protecting non-public information, Regulation S-P requires firms to disclose to customers when that information is shared with third parties. For example, a firm must tell a customer if it sends the customer’s non-public information to a third-party company that prints checks. To print checks, the third party needs access to account numbers and other private account information.

Firms must provide these disclosures at account opening and then annually. The firm must also give the customer an “opt-out” option, which prevents the firm from sharing non-public information with third parties. Opt-out methods must be easy to use. Common examples include check-off boxes on letters or emails. More burdensome requirements - such as forcing a customer to write a lengthy letter to request an opt-out - are prohibited.

Regulation S

Regulation S provides an exemption from SEC registration for securities that are offered and sold outside the United States. Because the offering takes place offshore, the issuer does not have to register the securities under the Securities Act of 1933. The regulation is designed to keep foreign offerings separate from U.S. markets.

Regulation S also places restrictions on how quickly those securities can be resold into the United States. For debt securities, such as bonds, issued by most reporting issuers, the typical distribution compliance period is 40 days. During this period, the securities cannot be offered or sold to U.S. persons. After the compliance period has passed, resales into the U.S. may occur, subject to any applicable rules.

In general, Regulation S securities cannot be immediately sold back into U.S. markets. Depending on the issuer and the type of security, exam questions may reference resale restrictions lasting 6 to 12 months. The key idea is that Regulation S applies to offshore offerings, provides an exemption from SEC registration, and imposes resale restrictions to prevent securities from flowing directly back into US markets.