The Financial Industry Regulatory Authority ("FINRA") recently requested public comment by November 30, 2015, on two proposed rules in an attempt to prevent financial exploitation of seniors and other vulnerable adults. See Regulatory Notice 15-37 (http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-37.pdf). In attempt to protect this group of investors, FINRA  proposes a broad definition of "financial exploitation," which would include: "(A) the wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult's funds or securities; or (B) any act or omission taken by a person, including through the use of a power of attorney, guardianship, or any other authority, regarding a specified adult, to: (i) obtain control, through deception, intimidation or undue influence, over the specified adult's money, assets or property; or (ii) convert the specified adult's money, assets or property." FINRA has proposed two rules to address financial exploitation of seniors and other vulnerable adults. 

First, FINRA proposes amending FINRA Rule 4512 by requiring firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person at the time the customer's account is opened. The intent of having a trusted contact person is so that the person can be a resource for the firm in administering the customer's account and in responding to potential financial exploitation. The proposed rule would also require certain disclosures to be made to the customer including authorization to contact the trusted contact person and to disclose the customer's account information. 

Second, FINRA proposes adopting a new rule to permit qualified persons of firms to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers. This new rule would however provide firms with a safe harbor when they, in their discretion, place temporary holds on disbursement of funds or securities from the account of a "specified adult," who is defined as: "(A) a natural person age 65 and older; and (B) a natural person age 18 and older who the firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her interests."

It will be interesting to see how, in the course of the next few months, public comments ultimately shape the final version of these FINRA rules.

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