Financial Institutions Law Alert

On June 9, 2021, FINRA announced a proposed rule change to amend Rule 2165 (Financial Exploitation of Specified Adults).  The amendments would make two changes to the rule that was implemented just over three years ago.  First, the rule change would extend by 30 business days a temporary hold if the member firm has reported the matter to a state regulator or agency or a court of competent jurisdiction.  This change would more than double the potential hold period from 25 business days (15 for the initial hold per section (b)(2) plus an allowable extension of an additional 10 business days under section (b)(3)) to 55 business days.  Second, it would also allow firms to place such a hold on securities transactions.  Under the current version of the rule, holds may only be placed on disbursements of funds or securities.

These amendments are consistent with laws being passed in a number of states.  For instance, Arkansas recently modified its report and hold law to apply to transactions as well as disbursements.  

A number of states also have provisions that allow firms to reach out to individuals reasonably associated with the accounts, though some states require that such contacts be made only with people previously designated by the customer.  Subject to certain limitations, FINRA Rule 4512 generally requires firms to ask customers to identify a “trusted contact” who may be contacted about the customer's account.  Nothing in the announcement regarding these amendments evidences whether FINRA is considering expanding the scope of Rule 4512, or other rules, to provide for the type of notice being explicitly allowed by a number of states.   

Firms are encouraged to consider whether applicable state law may provide for greater leeway than that provided under Rules 2165 and 4512.  Despite originating from NASAA’s model act, some of the state laws being put into effect vary significantly.  Practitioners are advised to consult Bressler’s Senior and Vulnerable Investors Map for the latest developments.


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