On February 15, 2022, FINRA announced the adoption of certain amendments to FINRA Rule 2165, a rule aimed at preventing financial exploitation of seniors and specified adults. The amendments now allow member firms to place a hold on securities transactions and not just disbursements of funds in the event the firm has a reasonable belief that financial exploitation has occurred, is occurring or is being attempted. In addition, the new amendments also extend the timeline for the temporary hold on a disbursement or a transaction by an additional 30 business days (to a total of 55 business days). The amendments to the rule become effective next month on March 17, 2022.
The key portions of the current and amended FINRA Rule 2165 are outlined below.
- Temporary Hold on Transactions – Permits member firms to place a temporary hold on a securities transaction from the account of a “specified adult” when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted or will be attempted.
- Extension of the Hold Period – The amendments will allow an extension of the time for a temporary hold for an additional 30 business days, beyond the current maximum of 25 business days (for a total of 55 business days), if the member firm has reported the matter to a state regulator or agency, or a court of law. The goal of the extension of time is to provide member firms with additional time to resolve matters and for state authorities to conduct thorough investigations.
By way of background, below are some additional key portions of the current FINRA Rule 2165:
- Safe Harbor – Provides member firms and their associated persons with a safe harbor from FINRA Rules 2010, 2150, and 11870 when member firms exercise discretion in placing temporary holds consistent with the requirements of Rule 2165. Thus, FINRA has made it clear that member firms are encouraged to take advantage of Rule 2165 protections when there is a reasonable belief of customer financial exploitation.
- Safeguards – Rule 2165 includes essential safeguards that apply equally to holds on disbursement and transactions as allowed by the amended rule. These include:
- Utilization of the rule must be based on a reasonable belief of financial exploitation.
- The member firm must provide notification of the hold and the reason for the hold to all parties authorized to transact business in the account no later than two business days after the date the hold is first placed.
- After placing a hold, the member firm must immediately initiate an internal review of the facts and circumstances that caused the member to place the hold.
- A member firm relying on Rule 2165 must establish and maintain written supervisory procedures and training policies and programs reasonably designed to achieve compliance with the rule. Records related to compliance with the rule should be retained and be readily available to FINRA, upon request.
- Any request for a hold must be escalated to a supervisor, compliance department or legal department.
These amendments provide important and necessary changes to a critical FINRA rule for the protection of senior and vulnerable adult investors. As these amendments become effective in the next month, it will be critical for firms to revise their policies and procedures to ensure compliance with the revised rule.
For more information and assistance, please contact the attorneys in Bressler’s Seniors and Vulnerable Investors practice group.