For some time now, NASAA, FINRA and the SEC\u2019s Division of Enforcement have been focused on cases involving sales of securities to at risk investors, including senior citizens.\u00a0 In various published remarks, NASAA representatives have noted that approximately one-third of the enforcement actions in recent years have involved sales made to senior citizens.\u00a0 In October 2016, FINRA filed with the SEC proposed rules that would amend Rule 4512 and adopt new Rule 2165.\u00a0 These proposals address a number of the concerns raised by FINRA\u2019s Notice to Members 15-37.<\/p>\n
The FINRA proposal would amend existing customer account information rules to require brokers to attempt to obtain the name and contact information for a \u201ctrusted contact person\u201d upon opening an account. A broker would not be required to attempt to obtain the name of or contact information for a trusted contact person for accounts in existence prior to the effective date of the proposed rule change until the time that it updates the information for the account either in the course of its normal business, or until it is otherwise required to do so under applicable laws or rules.<\/p>\n
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Under proposed Rule 2165, brokers would have the benefit of a \u201csafe harbor\u201d enabling them to place a temporary hold for up to 25 business days (unless sooner terminated or extended by other regulators or agencies) on a disbursement of funds or securities, and to notify a customer\u2019s trusted contact, if they have a reasonable belief that financial exploitation is occurring.\u00a0 Financial exploitation is understood under the proposed rule to include the wrongful or unauthorized taking, withholding, appropriation, or use of the specified adult\u2019s funds or securities; or any act or omission by a person, including through the use of a power of attorney, guardianship, or any other authority, regarding the specified adult, to obtain control, through deception, intimidation or undue influence, over the specified adult\u2019s money, assets or property; or convert the specified adult\u2019s money, assets or property.\u00a0 A broker-dealer could rely on the safe harbor when the firm has a reasonable belief that financial exploitation is occurring in accounts owned by investors aged 65 or older, or by investors 18 and older with mental or physical impairments that render them unable to protect their own interests. Under the proposed rules, a member firm\u2019s written supervisory procedures must identify the title of each person authorized to place, terminate or extend a temporary hold on behalf of the broker.<\/p>\n
A hold may be placed on suspicious \u201cdisbursements,\u201d but not on \u201ctransactions.\u201d\u00a0 The proposed rules would not create a \u201cduty\u201d to place temporary holds on any disbursements. Instead, they would protect firms that comply with the requirements of the safe harbor when they exercise discretion in placing such a hold.<\/p>\n
Rule 2165 would require member firms to \u201cestablish and maintain written supervisory procedures reasonably designed to achieve compliance\u201d with the rule, including \u201cprocedures related to the identification, escalation and reporting of matters\u201d related to financial exploitation.<\/p>\n
Following the comment period, the SEC will be required to approve the FINRA rules with any amendments made that are responsive to industry comment.\u00a0 The FINRA proposal should be viewed as part of the continued focus on at risk investors, including senior investors, and it is fair to anticipate that the SEC, FINRA and NASAA will include transactions involving senior investors as among their priorities for 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"
For some time now, NASAA, FINRA and the SEC\u2019s Division of Enforcement have been focused on cases involving sales of securities to at risk investors, including senior citizens.\u00a0 In various published remarks, NASAA representatives have noted that approximately one-third of the enforcement actions in recent years have involved sales made to senior citizens.\u00a0 In October … Continue reading At-Risk Investors<\/span>