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FINRA Proposes Rule for BDs to Help Stop Elder Fraud

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FINRA issued for public comment on Thursday a proposed rule that would give broker-dealers the power to place a temporary hold on disbursement of funds or securities from an elderly or mentally/physically handicapped customer’s account if there is a reasonable belief that the person is being financially exploited.

FINRA’s Board gave the self-regulator the go-ahead on Sept. 17 to issue the rule for public comment. FINRA did so on Thursday by releasing Regulatory Notice 15-37.

In another move to help prevent elder financial abuse, lawmakers on the Senate Special Committee on Aging urged the SEC Thursday to take the lead in creating a database that seniors and their families can use to determine whether a financial professional is legitimate and licensed to invest their money.

In their Oct. 14 letter to SEC Chairwoman Mary Jo White, Sens. Susan Collins, R-Maine, and Claire McCaskill, D-Mo., said that the SEC should create and control “one clearinghouse” that would allow for a more user-friendly and thorough background check for seniors to ensure their investment advice was being provided by trusted professionals. The SEC database, the Senators say, would replace FINRA’s BrokerCheck, the Investor Advisor Public Disclosure system, and the CFTC’s SmartCheck.

The SEC database, the Senators continued, would satisfy recommendations made by the SEC’s Investor Advisory Committee.

FINRA is proposing amendments that would require firms to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account, as well as proposing a new rule that would permit firms to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold.

NASAA, the state securities regulators’ organization, floated a similar rule on Sept. 30.

FINRA’s rules currently do not explicitly permit firms to contact a non-account holder or to place a temporary hold on disbursing funds or securities where there is a reasonable belief of financial exploitation of a senior or other vulnerable adult.

Susan Axelrod, FINRA executive VP of regulatory operations, said in releasing Thursday’s proposed rule that it is intented to provide firms with “appropriate tools to use when they have reasonable belief that financial exploitation is taking place,” allowing firms to better protect their “senior and other vulnerable customers.”

The comment period on FINRA’s Regulatory Notice expires Nov. 30.


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