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News June 13, 2005 Issue

IAA Posts FAQ On New Disposal Requirement

Just in time for the July 1, 2005 compliance date, the Investment Adviser Association (formerly the Investment Counsel Association of America) has helpfully posted a FAQ on the new Reg. S-P disposal rule. Thatís the rule, adopted in December 2004, that requires SEC-registered advisers and others to take reasonable steps to properly dispose of consumer report information (credit reports, bankruptcy information, etc.) so as to ensure that the information doesnít fall into the wrong hands after it has been tossed. The rule is designed to help protect consumers against identity theft and fraud. "All investment advisers will need to review their privacy policies and procedures to ensure compliance with the SECís new rule," said the IAA.

If you arenít familiar with the rule, the IAAís FAQ, which is publicly available, is an excellent place to start. Among other things, the group notes that an adviser might obtain consumer report information subject to the rule by obtaining consumer reports in connection with financial planning activities, employment decision-making, or as part of their anti-money laundering compliance purposes. To determine whether it has consumer report information, the group recommends that an adviser assess its business practices to determine where it obtains information about actual and potential clients and employees. "If an adviser obtains consumer reports on these individuals for business purposes, the adviser should identify the exact use and chain of control of the report, as well as the use of the information from the report."

The IAAís FAQ also address an adviserís use of an affiliateís consumer report information, the proper disposal of consumer report information, and integrating disposal policies and procedures into the firmís privacy and safeguarding policies and procedures.