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June 16, 1998
TO: SEC RULES COMMITTEE No. 57-98
RE: RECENT DEVELOPMENTS RELATING TO DATA PRIVACY
______________________________________________________________________________
The issue of data privacy has received increasing attention in recent months. Within the last two
weeks, the Federal Trade Commission has released a report on privacy online, the Department of
Commerce has published a discussion paper on the characteristics of effective self-regulation for privacy,
and newspaper articles on the leakage of personal financial data have prompted Congressional interest in
privacy issues in the financial services industry. The purpose of this memorandum is to bring these three
recent developments to the attention of Institute members. This memorandum also requests input on
the Institute’s response to Commerce’s request for comment on its discussion paper.
Federal Trade Commission Report to Congress
On June 4, 1998, the FTC issued a “Report to Congress on Privacy Online” describing the
results of its survey of over two thousand web sites. The FTC found that 97% of the 125 financial sites
surveyed collected personal information from consumers, while only 16% post any disclosure about
their privacy or information practices. (The FTC’s sample did not include enough mutual fund sites to
draw any conclusions with respect to investment company disclosure practices on the Internet.) The
FTC’s press release is attached and the full text of the FTC Survey is available at
http://www.ftc.gov/reports/privacy3/index.htm.
Request for Comment on Department of Commerce Discussion Paper
On June 5, 1998, Commerce published a discussion paper proposing “the elements that should
be present in a self regulation regime that effectively protects privacy online.” The release encourages
industry to craft “methods of implementing those elements that best serve its needs and the needs of its
consumers.” Commerce has requested comment by July 6, 1998. The Federal Register Notice
publishing the paper and requesting comment is attached.
Press Coverage on Leaks of Personal Financial Data
Last week, several news reports highlighted problems involving the release of customer
confidential financial information by banks and other financial services providers to persons other than
the customer. These reports question the security of all types of financial information, including stock
and mutual fund ownership information. In response, Congressman Edward Markey (D-Mass.) sent
letters to SEC Chairman Arthur Levitt and Federal Reserve Board Chairman Alan Greenspan asking
about the nature and adequacy of current legal protections for the privacy of personal information and
stating Congressman Markey’s belief that additional legislation is needed in this area in order to protect
consumers. Copies of Congressman Markey’s letters are attached.
* * * * *
In light of these developments, members may wish to review their policies with respect to the
confidentiality of personal data about individuals to assure that information is not used in ways that
undermine investment company shareholders’ privacy expectations. Members with web sites may wish
to consider whether to disclose their privacy practices on their web site, particularly if the web site can
be used by customers to request information or engage in transactions. In addition, members may wish
to review their internal security and control procedures to assure that the procedures are adequate to
protect shareholders’ personal information.
The Institute is currently drafting a response to Commerce’s request for comment. Please
review the attached Federal Register Notice and provide comments to Bob Grohowski by phone to
(202) 371-5430, fax to (202) 326-5841, or e-mail to rcg@ici.org no later than Monday, June 29.
Robert C. Grohowski
Assistant Counsel
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