FINRA Proposes Rule Changes Aimed to Increase Protection of Vulnerable Clients

On October 19, 2016, the Financial Industry Regulatory Authority, Inc. (FINRA) filed a proposed rule change with the Securities and Exchange Commission in an effort to combat the exploitation of senior and vulnerable investors. The proposed rule change would amend FINRA Rule 4512 to require firms to make “reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account.” Perhaps more significantly, the change would provide for the adoption of new FINRA Rule 2165 entitled “Financial Exploitation of Specified Adults.” This proposed rule would permit firms to temporary freeze withdrawals from the accounts of “specified adults” when there is a “reasonable belief” that those customers are being financially exploited. The rule would define “specified adult” as: (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.

In support of the proposed rule change, FINRA cited its experience with the FINRA Securities Helpline for Seniors as evidence that the financial exploitation “of seniors and other vulnerable adults is a serious and growing problem.” FINRA also took note that certain states have passed laws aimed at preventing such exploitation and cited the North American Securities Administrators Association’s model state act in support of its view that investors would benefit from the propagation of a “uniform national standard.”

Joshua D. Jones is a principal at Bressler, Amery & Ross PC, Birmingham, Alabama.

_{Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).}