SEC Affiliate Marketing Rules For Broker Dealer Investment Advisers, Transfer Agents And Investment Companies - Compliance Required June 1, 2010

Profession:Goodwin Procter LLP
 
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James Mattus and James Shreve contributed to the preparation of this Advisory

The SEC approved a final rule on affiliate marketing, implementing Section 214 of the Fair and Accurate Credit Transactions Act of 2003 ("FACTA"), which amends the Fair Credit Reporting Act. Section 214 of FACTA provides consumers with the right to restrict a person from using certain information obtained from an affiliate to make solicitations to that consumer.  The new rule, which applies to broker-dealers (other than notice registered broker-dealers), investment companies and SEC-registered investment advisers and transfer agents, has a June 1, 2010 compliance date after a recent extension by the SEC.

FACTA required the federal banking regulatory agencies (the "Agencies"), the Federal Trade Commission (the "FTC") and the SEC, in consultation and coordination with one another, to issue rules on affiliate marketing.  The FTC issued its final affiliate marketing rules on October 30, 2007 (the "FTC Rules"), and the Agencies released joint final rules on November 7, 2007 (the "Joint Rules").  After submitting rules for comment on July 8, 2004, the SEC recently adopted a final set of rules ("Regulation S-AM") governing affiliate marketing to be published at 17 CFR 248.101 et seq. 

Regulation S-AM mirrors the requirements that have been introduced by the FTC and the Agencies.  Generally, the rule will require that consumers be provided an opportunity to "opt-out" before a person or company may use "eligibility information" provided by an affiliated company to market its products or services to the consumer.  Regulation S-AM defines "eligibility information," by reference to the statute, as any: 

report containing information solely as to transactions or experiences between the consumer and the person making the report with communication of that information among persons related by common ownership or affiliated by corporate control; or communication of other information among persons related by common ownership or affiliated by corporate control, if it is clearly and conspicuously disclosed to the consumer that the information may be communicated among such persons and the consumer is given the opportunity, before the time that the information is initially communicated, to direct that such information not be communicated among such persons. Regulation S-AM does not cover aggregate or blind data that does not contain personal identifiers. ...

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