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Red Oak Blog

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Friday, April 14 2017

Exploitation of Seniors Leads to New & Amended FINRA Rules

In response to the increased financial exploitation of seniors, the SEC recently approved the adoption of new FINRA Rule 2165: Financial Exploitation of Specified Adults and amendments to FINRA Rule 4512: Customer Account Information. FINRA Rule 2165 and the amendments to FINRA Rule 4512 offer members a number of options in responding to what is reasonably believed to be financial exploitation.

More specifically, FINRA Rule 2165 allows “. . . members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable . . .” basis to believe those customers have been financially exploited. Further, the amendments to FINRA Rule 4512 require members to make reasonable efforts to gather contact information for a trusted contact when a non-institutional customer’s account is opened. Members may open accounts for those customers even if they have not gathered contact information for a trusted contact, so long as they have made reasonable efforts to gather the information.

FINRA Rule 4512 was further amended to require members to disclose in writing the purpose of their gathering of contact information for a trusted contact at the time a customer opens an account. The disclosure may be provided to customers electronically. The disclosure should detail that the member may contact the trusted contact in an effort to address potential financial exploitation. Through that contact, the member may confirm the customer’s contact information, the status of the customer’s health, or confirm the identity of any trustee, executor, legal guardian or holder of a power of attorney, etc. FINRA envisions that the trusted contact person will serve as “. . . a resource for the member in administering the customer’s account, protecting assets and responding to possible financial exploitation.” The rule does not require members to contact trusted contact persons to inform them that they have been named as such.

New FINRA Rule 2165 allows members to place a temporary hold on disbursements from a “specified adult” customer’s account if there is a reasonable belief that financial exploitation has occurred. However, the rule does not require that a temporary hold be placed on the disbursement of funds or securities from the account under such conditions. Among other key definitions, the rule defines “specified adult” and “financial exploitation”. There is no requirement that the financial exploitation be attempted before the member may place a temporary hold on the account. For example, a member may place a hold on disbursements from an account if financial exploitation has been attempted or “. . . if the member reasonably believes that financial exploitation of the specified adult has occurred, is occurring . . . or will be attempted.”

Click here for a more detailed synopsis of new FINRA Rule 2165 and the amendments to FINRA Rule 4512. Contact us with questions regarding how your firm can work to address the increased exploitation of aging customers.