FINRA Releases FAQ on Senior Exploitation Rules

 Commentary  March 02, 2022 at 07:44 AM  Share & Print

 

What You Need to Know

  • FINRA explains when a broker-dealer may extend a temporary hold under Rule 2165.

  • Who may serve as the trusted contact for an account pursuant to Rule 4512 is also explained.

The Financial Industry Regulatory Authority released Wednesday frequently asked questions guidance on rules the broker-dealer regulator has adopted related to financial exploitation of senior investors.

The FAQ answers questions on Rule 2165 (Financial Exploitation of Specified Adults) and Rule 4512 (Customer Account Information).

FINRA adopted amendments to Rule 2165 in mid-February. The amendments, which become effective March 17, allow broker-dealers to:

  • place a hold on a securities transaction (in addition to the already permitted hold on a disbursement of funds or securities) where there is a reasonable belief of financial exploitation; and

  • extend a temporary hold on a disbursement or transaction for an additional 30 business days, beyond the current maximum of 25 business days (for a total of 55 business days), if the member firm has reported the matter to a state regulator or agency, or a court of competent jurisdiction.

FINRA Rule 4512 (Customer Account Information) requires members to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account.

One question in FINRA’s just-released FAQ asks whether, under Rule 2165, a broker-dealer that has a reasonable belief of financial exploitation of a senior investor “can place a temporary hold on a securities transaction or disbursement related to a request to move funds or securities from an account to another account” at the firm.

FINRA’s response: “Yes. Rule 2165 provides a safe harbor for a member to place a temporary hold on a securities transaction or disbursement of funds or securities from the account of a specified adult where there is a reasonable belief of financial exploitation. Accordingly, a member may place a temporary hold on a request to disburse funds or securities from an account to another account at the member (e.g., where a member receives a request to move funds from a customer’s account to his friend’s account at the member but the member reasonably believes that the customer is being financially exploited). Moreover, consistent with Rule 2165, a member may place a temporary hold on a securities transaction related to a request to move funds or securities from an account to another account at the member.”

The FAQ also addresses when a broker-dealer may extend a temporary hold under Rule 2165 as well as who may serve as the trusted contact for an account pursuant to Rule 4512.

FINRA states that a trusted contact — who is intended to be a resource in administering the customer’s account, protecting assets and responding to possible financial exploitation — be a natural person age 18 or older.

However, FINRA states that it “would not expect a member to verify the age of a designated trusted contact.”

Other than age, “Rule 4512 does not restrict any natural persons from being named as trusted contacts. For example, Rule 4512 does not prohibit joint accountholders, trustees, individuals with powers of attorney and other natural persons authorized to transact business on an account from being designated as trusted contacts,” FINRA states.


European Compliance Association

European Compliance Association

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