Finra could consider allowing holds on transactions if elder fraud suspected

The organization may eventually broaden a rule that already covers disbursements from brokerage accounts

Sep 13, 2017 @ 5:15 pm

By Greg Iacurci

Finra is weighing an expansion of a rule to protect seniors from fraudulent disbursements from brokerage accounts to include fraudulent transactions as well, according to an executive at the regulatory organization.

The Finra rule in question is Rule 2165, which allows broker-dealers to place a temporary hold on disbursements from brokerage accounts if there's reasonable belief of elder financial exploitation. The rule, proposed in last fall, goes into effect in February 2018.

"It's about disbursements" of funds or securities, said James Wrona, vice president and associate general counsel at the Financial Industry Regulatory Authority Inc., the self-regulatory organization overseeing broker-dealers and their registered representatives. "It doesn't apply to transactions. That is something we're still considering."

(More: Finra: Who's watching the watchdog?)

Disbursements caused by elder financial abuse are a bigger problem for firms than transaction-related abuse, Mr. Wrona said at a Securities Industry and Financial Markets Association event in New York on Wednesday. Therefore, Finra wanted to tackle rules for disbursements first.

But if fraudulent brokerage transactions emerge as a problem after the first tranche of rulemaking, "we'll consider broadening the rule to cover those," Mr. Wrona told InvestmentNews.

He alluded to some of the potential challenges involved in such a process, such as placing a hold on a transaction when an investor wants to take advantage of the price of a security at a given time.

Finra's rule is coming into effect at a time when regulators are beefing up investor protections around elder financial abuse.

Last year, the North American Securities Administrators Association issued a model rule requiring financial advisers to report suspected abuse to state and other authorities, allowing them to stop disbursements from seniors' accounts and giving them protection from liability. Several states, including Alabama, Indiana, Louisiana and Vermont, passed laws in 2016 that followed or replicated the NASAA rule.

NASAA executives expect more states to follow suit.

A recent InvestmentNews investigation found instances of elder financial abuse stemming from the U.S. opioid epidemic are increasing.


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