Hold On! Analyzing FINRA's New Rules to Address Senior Financial Exploitation

April 3, 2018


Publication
Bloomberg BNA

Amy B. Bard
Daniel S. Strashun
Andrew T. Mount


Two new FINRA rules went into effect on February 5, 2018, targeted to address senior “financial exploitation.” FINRA Rule 2165 permits member firms to place temporary holds on disbursements of funds or securities under certain circumstances where the firm has reason to believe a senior client is the victim of fraud. Amended Rule 4512, the “Trusted Contact Rule,” requires member firms to make reasonable efforts to obtain the name of and contact information for a ‘trusted contact person’ of a senior so they can reach out to him/her and discuss activity in the account.

It is estimated that elderly adults, who have been subject to scams perpetrated by third parties, lose $36.8 billion per year. These new rules have been implemented to provide firms with ways to respond to situations in which they have reason to believe financial exploitation of a senior is occurring or about to occur.

The question inevitably raised by these new rules is, what impact will they have on civil cases? Now that firms may apply a temporary hold or may reach out to a trusted contact, is this going to be construed as an obligation? Will claimants in civil suits point to these procedures as the new standard of care, so that failure to take action under the rules constitutes negligence or breach of a duty?

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