Finra examinations will soon start probing broker-dealers' compliance with
new rules issued a year ago that are meant to protect elderly clients from financial abuse and exploitation.
"I think the next round of exams, we'll be looking a little more closely," James Wrona, vice president and associate general counsel at the
Financial Industry Regulatory Authority Inc., said Tuesday at a Securities Industry and Financial Markets Association event in New York.
Mr. Wrona was speaking of Finra Rule 2165, which went into effect in February 2018. The rule allows broker-dealers to
place a hold on elderly clients' account disbursements if they have a reasonable belief the client is being financially abused.
The rule allows for a 15-day hold on the funds and the possibility of a 10-day extension. It's a safe harbor, meaning the rule is voluntary but provides legal protection from Finra to firms that follow its guidelines.
Mr. Wrona said the goal of the Finra exams would primarily be to check on the systems and processes firms have in place, to check that issues are properly elevated and that there's an identified team to handle relevant decisions. The regulator also wants to learn about firms' experiences with compliance, such as areas in which Finra could potentially assist and any tweaks the agency could make to the rule, he said.
"We want more information. This isn't going to be a gotcha, check the box, did you do it or not," Mr. Wrona said. "We're interested in learning about your situations, how you're dealing with [the rules] and how we can assist."
He did add that firms placing holds on account disbursements seemingly without forethought or procedure would warrant a closer look.
(More: 10 states with the weakest elder-abuse protections)
Some brokerage executives say there's room for improvement with the Finra rule.
"I think we need to revisit the hold periods," said Ashley Hulting, an attorney with TD Ameritrade Inc. who provides in-house counsel on retail and branch operations, on a panel at the SIFMA conference.
The firm is "almost never" able to conduct a thorough investigation within the allotted 15 days to definitively determine whether a senior is being financially exploited, Ms. Hulting said.
Communicating with other brokerage firms who hold client money also has been a problem, panelists said, citing privacy concerns that could result in a lawsuit. While one institution may be able to prevent the outflow of funds due to a suspicion of abuse, the institution cannot easily contact another broker-dealer holding the client's money in order to warn them, panelists said.
"We should be able to call Merrill Lynch," said Ronald Long, director of regulatory affairs and elder client initiatives at
Wells Fargo Advisors.
Panelists also complained of a lack of consistency among state agencies, such as Adult Protective Services or state securities regulators, when it comes to their response to broker-dealers' reports of suspected abuse.
"There are some Adult Protective Services, if you're not telling them there's a gun being held to a senior citizen's head, they don't want to hear about it," Ms. Hulting said.
Finra also released a parallel rule, Rule 4512, last February encouraging broker-dealers to gather the name of a trusted person to be contacted in case of suspected elder financial abuse.
