The American Securities Association is urging FINRA to refine proposed rules aimed at curbing elder fraud and broader investor exploitation, warning that some changes could create new risks for smaller firms and customers.
In an open letter dated March 12, the ASA offered responses to Regulatory Notice 26-02, which would amend Rule 4512, revise Rule 2165 and add proposed Rule 2166 to give broker‑dealers more tools to pause suspicious transactions and protect vulnerable clients.
“Protecting America’s seniors from fraud demands a regulatory framework that empowers firms to intervene when they see red flags without forcing investors who have done everything right to endure months-long freezes, account holds, or intrusive data collection,” ASA President and CEO Chris Iacovella said in a statement.
The association's letter said it supports several of the proposal’s goals – including the use of an “emergency contact” option and short delays on disbursements – but pressed FINRA to limit data collection, avoid turning temporary holds into de facto freezes, and provide clearer standards that work for regional and smaller firms.
“Fraud targets investors of all ages, and a short ‘speed bump’ can be critical to disrupting schemes such as account takeovers, imposter scams, and technology‑enabled exploitation,” the association wrote, backing brief, targeted interruptions to transactions while urging caution about expanding hold durations.
The group also asked that firms be allowed operational flexibility, such as using existing supervisory staff rather than creating new roles to comply with the rules.
On data and information sharing, the association cautioned about the risks of having regulators collect centralized repositories of personally identifiable and financially sensitive information.
“When such databases are compromised, American investors and savers bear the brunt of the resulting fraud and cyber risk,” the letter said, arguing that increased aggregation of personally identifiable and financial data could magnify harms if breached.
On extended holds under Rule 2165, the association pushed back against a proposed 145‑business‑day cap, asserting it would be excessive in many cases and urging FINRA to emphasize proportionality. It recommended that extensions be optional, fact‑specific, and subject to a firm’s reasonable judgment, and suggested alternatives such as partial holds, limited trade restrictions or enhanced monitoring to avoid unnecessarily locking clients out of their assets.
The association also supported the creation of a limited safe harbor in proposed Rule 2166 for brief delays on disbursements – a five‑business‑day baseline with the option for one or two short extensions when law enforcement requests more time. It asked FINRA to clarify that the safe harbor would not replace contractual hold provisions and that firms should be able to convert a Rule 2166 delay into a Rule 2165 hold when appropriate, with guidance on notice and documentation expectations.
A recurring theme in the letter was the need for guidance that scales to smaller firms’ capabilities. The association asked FINRA to offer sample disclosures and FAQs, accept multichannel outreach methods to customers and their trusted contacts, and confirm that standard internal notes and automated acknowledgments can satisfy documentation requirements when authorities do not respond quickly.
The group also urged FINRA to highlight risks tied to foreign exposures in index products and pooled vehicles, noting how opaque issuers abroad can transmit fraud-related losses to ordinary investors through passive strategies.
"While FINRA does not set index‑construction policy, it can play an important role by encouraging firms to provide clear, plain‑English disclosures about these structural risks," the letter said.
It said the regulator could also encourage firms "to incorporate heightened due‑diligence and surveillance expectations" for products exposed to markets that don't reliably enforce auditing and disclosure standards, and suggested recommendations of those products to seniors ought to be tagged as "higher‑risk activity for purposes of supervision and surveillance."
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