Financial Institutions Client Alert

In Regulatory Notice 20-34 FINRA proposes to amend Rule 2165 (Financial Exploitation of Specified Adults) to allow firms: (1) to place transaction holds; and (2) to extend the hold period for an additional thirty (30) days if certain requirements are met.

Transaction Holds

FINRA’s revised Rule 2165 will permit firms to place holds on transactions in securities when they suspect financial exploitation of an elderly or vulnerable adult.  The rule change would create a national standard for broker-dealers and adopt the recent trend in state “report and hold” laws.  Firms will be required to adopt reasonably designed written supervisory procedures to ensure compliance with the revised rule.

Extending the Hold Period

Since Rule 2165’s inception, firms have struggled to investigate and resolve suspected financial exploitation in the 25-day time period allowed under the rule.   Through the rulemaking process, firms reported to FINRA that the common reasons for the delay were: (1) the matter was under consideration by a state agency or a court; (2) the customer did not respond to inquiries from the firm; or (3) the customer did not believe he or she was being financially exploited.  In response to these concerns, FINRA is proposing to amend Rule 2165 to allow firms to extend the hold an additional 30 business days provided that the firm has reported the suspected financial exploitation to a state regulator or appropriate agency.

FINRA has asked for comment on the proposed rule changes by December 4, 2020.

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