In 2019, FINRA launched a retrospective review to assess the effectiveness and efficiency of its rules and administrative processes meant to help protect senior investors from financial exploitation.  Based on feedback received during the review, FINRA is now proposing amendments to Rule 2165 regarding financial exploitation of specific adults to extend the hold period and allow temporary holds on transactions.

Rule 2165 permits a member firm to place a temporary hold for up to 25 business days on the disbursement of funds or securities from the account of (a) a natural person age 65 and older, or (b) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests, when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted, or will be attempted.  The rule also provides that this period may be terminated or extended by a state agency or a court of competent jurisdiction. 

FINRA is proposing that the current 25-business day hold period be extended to provide member firms with a longer period to resolve matters, as the current period may not be sufficient when a matter is under consideration by a state agency or court and member firms have expressed to FINRA the need for additional time to conduct investigations and resolve matters.  Thus, FINRA is proposing amending Rule 2165 to permit extending a temporary hold for an additional 30 business days if the member firm has reported the matter to a state agency or a court of competent jurisdiction.

Also, while placing a hold pursuant to Rule 2165 stops funds or securities from leaving a customer’s account, the rule currently does not apply to transactions in securities.  Some state laws and customer agreements already permit placing holds on transactions, but FINRA is proposing to amend Rule 2165 to create the first uniform, national standard for placing holds on transactions related to suspected financial exploitation of these specific adults.  A firm would be permitted, but not required, to place a temporary hold on a transaction when there is a reasonable belief that the customer is being financially exploited.

FINRA is requesting comments on all aspects of these proposed amendments to Rule 2165.  We encourage our clients to submit comments after reviewing Regulatory Notice 20-34 in full and evaluating what effects the suggested changes would have on their business practices.  Regulatory Notice 20-34 can be found at https://www.finra.org/rules-guidance/notices/20-34, and the deadline to submit comments is December 4, 2020.