The Financial Industry Regulatory Authority is gearing up to release new rule proposals that allow advisors to pause orders if they believe some type of financial exploitation of senior investors is afoot.
“We recently passed, vis-a-vis our board, proposed regulation notices, which should be coming out either end of this week or early next week,” Ann-Marie Mason, FINRA’s director & counsel of shared services, litigation and policy, said during SIFMA's Senior Investors Forum on Tuesday. “We are putting into place a couple of rules that we think will assist member firms in dealing with individuals with diminished capacity.”
One of these rule proposals is aimed at creating a 15-day “safe harbor” period that makes it permissive for advisors to hold disbursements in senior customer accounts. In this case, a "senior investor" is defined as an individual either aged 65 or older, or an investor who has some other evidence of vulnerability. The rule will allow advisors who have a reasonable basis to suspect that financial exploitation is occurring to pause the disbursement of funds or securities coming out of that account for up to 15 days, according to Mason.
While the proposed rule does not grant immunity, it allows advisors to reach out to the trusted contact. Under the current privacy laws and customer information protection regulations, such as Regulation S-P, a lot of firms harbor inhibitions about telling outside contacts, such as family members, that something may be wrong, Mason says. “So in the presence of the rule, we're hoping that would give firms some level of assurance that there is not a Regulation S-P issue there,” she says.
FINRA also is planning on releasing another, related proposal seeking to amend the current Rule 4512 around customer account information. The change would require member firms to get trusted contact information on accounts of senior investors.
“The way the rule is proposed right now, it asks that you make a reasonable attempt to get the trusted contact information. If the person elects not to give you that information, it doesn't preclude you from opening the account,” Mason says. “It would also require you to update the account for existing accounts at a reasonable time thereafter.”
The proposed “safe harbor” rule notes that if advisors do decide to pause disbursements, they have to tell the so-called "trusted contact" on file with the account. That is how you get out of the Reg S-P requirement, Mason says. If the trusted contact is the one performing the potentially abusive behavior, the rule also allows advisors or firms to contact an immediate family member or other responsible party instead, according to Mason.
FINRA’s proposals follow a similar rule proposal released by the North American Securities Administrators Association in late September.
NASAA's proposed rule provides qualified immunity from administrative or civil liability for a firm who reports any suspected financial exploitation or fraud against a senior. Specifically, the proposal provides for a 10-day hold on the disbursement of funds from suspected accounts, allowing advisors and firms to share that information with adult protective services or state securities regulators.
“It puts on a 10-day hold for disbursement of funds to protect it. Let's face it. We could report fraud all day long, but the money is already gone, we're not getting it back,” says Joseph Borg, director of the Alabama Securities Commission and a board member of NASAA’s senior issues and diminished capacity committee.
The Securities and Exchange Commission has yet to release any proposals around the financial exploitation of senior investors, although the agency’s Kevin Goodman says the protection of senior investors and those saving for retirement remains a top priority.
When asked Tuesday whether the SEC is likewise working on some rule proposal in this space, Goodman noted “there's been talk of that; that is all I know at this point.”
Borg said that in this area of regulation FINRA and state securities regulators are moving a little faster to get this one out there. There’s also interest from within Congress to move on this and they may very well decide to come out with their own federal legislation or proposal on that area, Borg added. “I think the FINRA proposal and the state proposal will probably be quicker than Federal legislation, who knows, we might be surprised.”
“Hopefully we'll give the broker/dealer community enough comfort to know that we're all on the same team on this one,” Borg said.
