April 2, 2017

Securities Alert: FINRA Adopts New Rules to Combat Financial Exploitation

SEC Approves FINRA Rules to Assist Member Firm’s in Combatting the Financial Exploitation of Senior and Other Specified Adults

On March 30, 2017, the SEC approved FINRA Rule 2165 (Financial Exploitation of Specified Adults) which permits FINRA Member Firms to place temporary holds on disbursement of funds or securities from accounts of specified customers when there is a reasonable belief financial exploitation has occurred, is occurring, has been attempted, or will be attempted.  New Rule 2165 adopts a broad definition of financial exploitation and provides Member Firms and their Associated Persons with a safe harbor from FINRA Rules 2010 (Standards of Commercial Honor and Principles of Trade), 2150 (Improper Use of Customers’ Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts) and 11870 (Customer Account Transfer Contacts) when members exercise discretion to place a temporary hold on a customer’s account pursuant to the requirements of new Rule 2165.  To avail itself of Rule 2165, a Member Firm must amend its written supervisory and compliance procedures as well as its document retention policies to conform with the requirements of Rule 2165.

The SEC also approved amendments to FINRA Rule 4512(Customer Account Information) to require Member Firms to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account.  The trusted contact person is intended to be a resource for the Member Firm in responding to possible financial exploitation and is incorporated in the notice requirements of new Rule 2165.

New Rule 2165 and the amendments to Rule 4512 become effective on February 5, 2018.

For further information please click here to access FINRA Regulatory Notice 17-11 (Financial Exploitation of Seniors).

Keesal, Young & Logan Securities Group

This information has been prepared by Keesal, Young & Logan for informational purposes only and is not legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between you and Keesal, Young Logan.  You should not act upon this information without seeking professional counsel.

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