SEC Approves FINRA Rules Designed to Protect Seniors

The SEC recently approved new FINRA rules designed to protect seniors from financial elder abuse.  Beginning February 2018 brokerage firms will be allowed to place a temporary hold on a disbursement of funds or securities when the firm has a reasonable belief of potential financial exploitation.  Firms also will be required to take reasonable efforts to include the name and contact information for a trusted contact person on a customer’s account.

Purpose of the FINRA Rule Changes

In announcing the new rules, FINRA acknowledged that “financial exploitation of seniors is a serious and growing problem.”  FINRA’s news release of the new rules noted that its “Securities Helpline for Seniors” has received more than 8,600 calls during the past two years, recovering over $4.3 million in voluntary reimbursements from member firms to their customers.  And, according to the National Council on Aging, as many as five million older Americans are abused every year, with the annual loss by victims of financial alder abuse estimated to be at least $2.6 billion.   And

The New Rules Offer More Protection to Seniors

FINRA’s new Rule 2165 will allow firms to place a temporary hold on a client’s request that money or securities be disbursed from the client’s accounts if the firm reasonably believes “financial exploitation” has occurred or is occurring.  The rule applies to accounts held be investors who are 65 or older or have a mental or physical impairment that renders the investor unable to protect their own interest.  The new rule, therefore, will give firms broad discretion to question unusual transactions that, in the firm’s view, may be initiated through fraud, undue influence, or intimidation.

FINRA Rule 4152 also will be amended to require firms to use reasonable efforts to obtain the name and contact information for a “trusted contact person” when opening a new client account or when updating information for existing client accounts.  The rule contemplates that the “trusted contact person” will be a resource that the firm can contact if the firm has difficulty contacting the client, the client becomes sick or suffers from Alzheimer’s disease or dementia, or if the firm has concerns about potential “financial exploitation” of the client.