FINRA has announced new rules relating to the financial exploitation of seniors and other specified adults. On February 5, 2018, the amendments to Rule 4512 and new Rule 2165 become effective.
FINRA Rule 4512
FINRA Rule 4512 will require members to make reasonable efforts to collect the name and contact information of a trusted contact person upon the opening of a non-institutional customer account or when updating the account information in existence prior to the effective date. During the account opening or while routinely updating the information, members must disclose to customers in writing that the trusted contact person may be contacted and information regarding the account may be provided in order to address possible financial exploitation or as otherwise permitted by Rule 2165. It is important to note that this disclosure must be provided to customers even if the customer does not identify a trusted contact person.
FINRA Rule 2165
Under FINRA Rule 2165, members are provided with permission to place temporary holds on the disbursement of funds or securities from the accounts of specified adults if the member reasonably believes that financial exploitation is involved. The definition of “specified adult” includes seniors and individuals who are 18 and older who the member reasonably believes has a mental or physical impairment that affects the individual’s ability to protect his or her own interests. If a member decides to place a temporary hold on a customer’s disbursement, the rule requires that the member immediately initiate an internal review. The internal review must assess the facts and circumstances that caused the member to believe that financial exploitation was involved. Notification of the hold must be provided to all those authorized to transact business on the account, including the trusted contact person, within two business days. If the trusted contact person is unavailable or suspected of being involved in the financial exploitation of the customer then notification to them is not required. Whether notification is provided orally or written, members are required to retain records evidencing notification. Under the rule, the temporary hold would expire no longer than 15 business days from the date the hold was initially placed. If the internal review supports the member’s reasonable belief of financial exploitation, the temporary hold may be extended for an additional 10 business days.
Retention of Records and Procedures
Rule 2165 requires members to retain records of: (1) requests for disbursement that may constitute financial exploitation of a specified adult and the resulting temporary hold; (2) the findings of a reasonable belief that financial exploitation has occurred, is occurring, has been attempted or will be attempted; (3) the name and title of the associated person that authorized the temporary hold on a disbursement; (4) notification(s) to the relevant parties pursuant to the rule; and (5)the internal review of the facts and circumstances supporting the member’s reasonable belief that the financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted. As should be expected, members are also required to establish and maintain written supervisory procedures reasonably designed to achieve compliance with the rule.
