FINRA's New Account Protection Rule Issued

May 09, 2018

 

The Securities and Exchange Commission’s Office of Investor Education and Advocacy has issued an Investor Bulletin entitled FINRA’s New Account Protection Rule – Trusted Contacts. The purpose of the Bulletin is to educate investors of the protections intended by FINRA Rule 4512. A copy of the Bulletin can be found here.

FINRA Rule 4512, which went into effect on February 5, 2018, requires brokerage firms to ask their retail customers to provide the name and contact information of a “trusted contact person” who the Firm is authorized to contact in the event of possible financial exploitation or fraud.

The Bulletin informs investors of what a “trusted contact person” is, advises why an investor would want to add one to their account, gives example of when the firm would contact a client’s “trusted contact person” and explains how to add one to a brokerage account. The Bulletin also makes clear that “a brokerage firm only has to ask retail customers for a trusted person’s contact information” but that such information is not required to open a new account.

Interestingly, the Bulletin does not mention FINRA Rule 2165, which went into effect at the same time as Rule 4512, and permits firms to place a temporary hold on disbursements from a vulnerable client’s account when the firm believes that financial exploitation may be occurring.