First Uniform, National Standards to Protect Senior Investors
WASHINGTON — Two FINRA rule changes took effect today addressing the financial exploitation of seniors and vulnerable adults, putting in place the first uniform, national standards to protect senior investors. Firms are now required to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account. In addition, the rule permits FINRA member firms to place a temporary hold on a disbursement of funds or securities when there is a reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold.
"These important changes, developed in collaboration with our members, provide firms with tools to respond more quickly and effectively to protect seniors and vulnerable investors from financial exploitation," said Robert L.D. Colby, FINRA's Chief Legal Officer. “With the aging of the U.S. population, financial exploitation is a serious and growing problem, and protecting senior investors remains a top priority for FINRA.”
The trusted contact person is intended to be a resource for firms in handling customer accounts, protecting assets and responding to possible financial exploitation of any vulnerable investors. The new rule allowing firms to place a temporary hold provides them and their associated persons with a safe harbor from certain FINRA rules. This provision will allow firms to investigate the matter and reach out to the customer, the trusted contact and, as appropriate, law enforcement or adult protective services, before disbursing funds when there is a reasonable belief of financial exploitation. It is a critical measure because of the difficulty investors face in trying to recover funds that they have inadvertently sent to fraudsters and scam artists.
FINRA recently published Frequently Asked Questions to help firms prepare. Shortly after the February 2017 announcement of the approval of these changes, FINRA amended its New Account Application Template, a voluntary model brokerage account form that is provided as a resource to firms when they design or update their new account forms, to capture trusted contact person information.
The rule changes were approved by the SEC in February 2017. FINRA set today as the effective date to provide member firms substantial time to prepare and develop policies and procedures. In addition, FINRA staff met with firms at events throughout the year to help them prepare for the rule changes.
The need for the proposal became clear from discussions with firms and calls into FINRA's Securities Helpline for Seniors®, which has highlighted some of the issues firms are facing when it comes to senior investors. To date, the helpline has fielded more than 12,000 calls, recovering over $5.3 million in voluntary reimbursements from firms to customers since its launch in April 2015.
FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.