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The Sec Approves Finra’s New Rules To Address The Financial Exploitation And Abuse Of Seniors

  • Posted on: Apr 13 2017

Financial exploitation and abuse is all too common in today’s day and age.  In fact, it is one of the fastest-growing forms of abuse of seniors and adults with disabilities. According to a recent MetLife study, titled “Broken Trust: Elders, Family & Finances,” about one million seniors lose an estimated $2.6 billion annually from financial exploitation and abuse.

Last October, the Financial Industry Regulatory Authority (“FINRA”) announced that it had submitted proposed rule changes to the Securities and Exchange Commission (“SEC”) to help member firms detect and prevent the abuse and financial exploitation of senior and vulnerable adult customers. (This Blog wrote about the proposed rule changes here.)

On March 30, 2017, FINRA announced that the SEC approved the proposed rule changes. In connection with the announcement, FINRA issued Regulatory Notice 17-11, and set February 5, 2018, as the effective date for the new rules.

The changes approved by the SEC involve two key protections for seniors and other vulnerable investors. First, member firms will be required to make reasonable efforts to obtain the name and contact information of a trusted contact person for a customer’s account. Second, member firms will be permitted to place a temporary hold on the disbursement of funds or securities when there is a reasonable belief of financial exploitation and abuse.

“These rules will provide firms with tools to respond more quickly and effectively to protect seniors from financial exploitation. This project included input and support from both investor groups and industry representatives and it demonstrates a shared commitment to an important, common goal – protecting senior investors,” said Robert W. Cook, FINRA President and CEO.

The trusted contact person is intended to be a resource for member firms in handling customer accounts, protecting assets and responding to possible financial exploitation and abuse of any vulnerable investors. The new rule allowing firms to place a temporary hold provides them and their associated persons with a safe harbor from certain FINRA rules. This provision will allow member firms to investigate the suspected exploitation and reach out to the customer, the trusted contact and, when appropriate, law enforcement or adult protective services, before disbursing funds.

Prior to the implementation date, FINRA will amend its New Account Application Template, a voluntary model brokerage account form that is provided as a resource to member firms when they design or update their new account forms, to capture trusted contact person information.

Takeaway

Financial exploitation and abuse of seniors and persons with disabilities is a problem that spans every community and social condition. It is underrecognized, underreported, and underprosecuted. FINRA’s effort to empower member firms to detect and prevent the financial exploitation of seniors and other vulnerable adults is an important step in addressing the problem. Though the amendments to Rule 4512 and new Rule 2165 do not go as far as some commentators have urged, they will, nevertheless, provide member firms with the tools to respond to situations in which they have a reasonable basis to believe that financial exploitation and abuse has occurred, is occurring, has been attempted or will be attempted.

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