In May, FINRA released a podcast The Essential Senior Investor Protection Tools: FINRA Rules 2165 and 4512. This podcast provides a great update on the background of FINRA rules 4512 and 2165 and examples of their effectiveness over a short time frame of implementation. Two members of FINRA’s general counsel who support FINRA on the policy making side were the guests on the show.
A few highlights from the podcast:
FINRA Rule 2165
FINRA Rule 2165 allows a broker-dealer to place a temporary hold on a disbursement of funds or a transaction if there’s a reasonable suspicion of financial exploitation of a senior. It allows a safe harbor under FINRA rules for firms to place those holds. Firm’s need to provide training, notify the clients trusted contact and maintain records related to placing the hold. FINRA noted a number of success stories where this rule was implemented and resulted in funds being saved from financial exploitation from family members and scams. When the rule underwent retrospective review, they made a few updates to include adding holds to securities transactions in addition to disbursements and extending the hold for 3rd party protective services, states and law enforcement departments to investigate for an additional 30 business days (55 business days total).
FINRA Rule 4512
FINRA Rule 4512 requires broker-dealers to ask customers for information about trusted contacts, essentially someone that the broker-dealer could reach out to for a variety of reasons, such as if the firm is having a difficult time connecting with the client. This is a tool that firms can use when they have concerns about a customer without infringing on their privacy rights. It requires firms to make a “reasonable effort” to obtain the name and contact information of a trusted contact. In practice, it means firms are required to ask. It doesn’t provide authority to do transactions. It is a powerful tool that Firms have used in the protection of senior investors.
Other Tools
FINRA has a number of tools to support its mission of protecting seniors, which it notes that 10,000 baby boomers in the US turn 65 every day. Examinations have senior review components. Rules for overall protection of clients including seniors are enforced. Guidance reports are available that highlight key issues. FINRA also launched in 2015, Securities Helpline for Seniors, which is a toll-free number for senior investors and their family members can get assistance from specially trained FINRA staff about concerns with brokerage accounts.
MasterCompliance provides expert consulting in building a compliance program with best practices and support. If you would like to explore additional assistance or services, please contact us.
