onventional wisdom holds that the government does not get much done during an election year, but Federal regulators have proposed new rules delineating how investors' personal data will be protected.
As barriers between banks, investment firms and insurance companies become increasingly blurred, officials from the Federal Reserve
and Treasury Department
find it necessary to make it tougher for financial companies to share seemingly benign data, such as customers' names, addresses, and telephone numbers.
(Privacy of Consumer Financial Information) of the Gramm-Leach-Bliley Act
would make it mandatory for institutions to allow the public to request information be kept private and not shared. "People should have the option to opt out of disclosure," a spokesperson for the Federal Reserve said. "If a financial institution has a deal to share information with a third party, the customer has to be notified about it."
The rules presently being discussed by the Federal Reserve and Treasury do not cover mutual funds and hedge funds, Robert Kiesel
, a partner at the New York-based law firm Schulte Roth & Zabel
said. However, the mutual and hedge fund industries will not get off that easily. The SEC
and The Federal Trade Commission
implement the same guidelines. "The proposed rules are a pain .... but they can be dealt with," he said.
Although these rules seem harsh, Kiesel said there are ways to structure deals to share information as under the status quo by making a joint marketing effort. "Mutual funds and hedge funds are not going to be able to get away with selling their list to get more AOL subscribers."
Kiesel warned, these rules can complicate compliance.
Looking toward to the future, John Baker
, of counsel to Stradley, Ronon, Stevens & Young
said, "Over the long term it is going to cause an urge to merge." With the proposed regulations, companies are able to share information freely with affiliated parties possibly pushing companies to†reach out to one another in order to circumvent these rules.
Privacy over the past year with the onset of the Internet has become a high profile issue because of the free flow of information. According to Baker, the widespread issue has even complicated the regulatory proposal. "Most institutions are still reacting to the proposal and figuring out how to influence regulators to choose less onerous views. I think it is going to take awhile to see how it shakes out," Baker said.
, president of Bobroff Consulting†
said, "Direct marketing funds have a unique problematic situation because they are the primary contact. Just as you have a CEO and COO it doesn't seem out of the question that there will be a [need for a] chief privacy officer."
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