FINRA, the Financial Industry Regulatory Authority, Inc. (a private corporation that acts as a self-regulatory organization (SRO)). has released a series of questions and answers designed specifically to address elder financial exploitation. Frequently Asked Questions Regarding FINRA Rules Relating to Financial Exploitation of Seniors (FAQ's) explains new rules that take effect on February 5, 2018.
The SEC recently approved: (1) the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers; and (2) amendments to FINRA Rule 4512 (Customer Account Information) to require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person (“trusted contact”) for a customer’s account. FAQs Nos. 1 and 2 deal with temporary holds, No. 3 deals with trusted contacts, and No. 4 with disclosures. The FAQs are available here.
FINRA Rule 2165 allows a FINRA member firm that reasonably believes financial exploitation may be occurring or has occurred to place a temporary hold of up to fifteen (15) business days on the disbursement of funds or securities from the account of a “Specified Adult” customer. A Specified Adult is either (a) a person aged 65 or older; or (b) a person, aged 18 or older, who the firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interest.
Rule 2165 also establishes additional recordkeeping requirements in order to comply with the rule including identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.
Further, Rule 2165 requires a member firm’s supervisory procedures to identify the title of the person authorized to place, terminate or extend a temporary hold. The person specified at the member firm must serve in a supervisory, compliance or legal capacity.
The rule allows member firms to exercise discretion in placing temporary holds on disbursements of funds or securities from the accounts of Specified Adults. The rule serves as a safe harbor from violations of other FINRA rules, but Rule 2165 raises the question as to whether a stockbroker is qualified to pass judgment on the mental condition of his or her clients.
Additionally, the rule requires members to develop and documents training policies or programs reasonably designed to ensure that associated persons comply with its requirements to aid in identifying tell-tale signs of elder financial abuse.
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