Wall Street's industry-funded watchdog is crafting guidance that would give brokers clarity about delaying transactions made by investors whom they believe may be suffering from dementia or are being influenced by caregivers, its chief said on Wednesday.
The issue is a high priority for the Financial Industry Regulatory Authority (FINRA), said Richard Ketchum, the regulator's chairman and chief executive, speaking in New York on Wednesday at the 2015 Reuters Wealth Management Summit. FINRA has been discussing the anticipated guidance with the U.S. Securities and Exchange Commission, Ketchum said.
At issue is a push by the securities industry to impose temporary holds on certain transactions that may be precipitated by a clients' declining mental capacity, or purported loved ones who may be trying to swindle them.
But firms can also violate industry rules when trying to get help for those clients. For example, brokerages may not be able to get the best possible prices for clients' securities, as industry rules require, after finding out the delayed transaction is legitimate. The problem has triggered some lawsuits against firms, Ketchum said.
"If someone asks for a trade to occur, firms are under an obligation to move ahead," Ketchum said. A hold period, such as the option for a five- or 10 day delay that some state securities regulators have imposed for withdrawal or wire transfer requests, could ease firms' regulatory burdens while brokerages look into troublesome situations, industry executives have said.
"They would like clarity in that from us. We will provide clarity on that and are working with the SEC," Ketchum said. The timing for the guidance is unclear.
The move comes as state securities regulators are also taking up the issue. Hold periods are common among state banking laws, but the concept has not been widely extended to brokerages. That is starting to change, however, with laws in Washington state and Delaware.
A bill recently passed in Missouri is awaiting approval by Governor Jay Nixon, a Democrat. The measure is under review, a spokesman said.
(Reporting by Suzanne Barlyn)
