Identity theft Red Flags Rule is a regulation issued by U.S. agencies requiring certain financial institutions and creditors to develop written programs that detect, prevent, and mitigate identity theft. The rule outlines categories of red flags such as suspicious account activity, alerts from consumer reports, or unusual identification documents. Insurance companies and broker-dealers that maintain covered accounts must implement policies, staff training, and response procedures to protect clients from identity-fraud risks.

Advisors encounter the Identity theft Red Flags Rule through firm procedures for verifying client identities, handling address changes, updating bank information, and responding to suspected fraud. Operations and compliance teams monitor system alerts and investigate irregular transactions, sometimes placing temporary holds. Advisors must follow verification steps even when they know clients personally. Understanding the Red Flags Rule helps advisors appreciate why certain security protocols may feel cumbersome but are essential for safeguarding client accounts and reputations.