FINRA Proposal Lets Financial Firms Hold Funds of Elder Abuse Victims
- The Financial Industry Regulatory Authority (FINRA) will soon be soliciting public comment on a proposal allowing financial institutions to put a hold on customer funds and notify a customer's "trusted contact" when the financial institution has a reasonable belief that the person is subject to financial exploitation.
- Customers and financial institutions will be allowed to submit input on the proposal once FINRA issues a regulatory notice seeking comment. The notice is expected in the next few weeks, but specific timing has not been announced.
The Financial Industry Regulatory Authority (FINRA) will soon be soliciting public comment on a proposal allowing financial institutions to put a hold on customer funds and notify a customer's "trusted contact" when the financial institution has a reasonable belief that the person is subject to financial exploitation.
The FINRA proposal to protect seniors from financial exploitation has three components:
1. Financial institutions must make reasonable efforts to obtain the name and contact information for a trusted contact person upon opening a customer's account.
2. Financial institutions will be allowed to place temporary holds on disbursements of funds or securities from the accounts of customers who are:
a. 65 or older and where there is a reasonable belief of financial exploitation, or
b. 18 and older if they have mental or physical impairments that render them unable to protect their own interests and there is a reasonable belief of financial exploitation.
3. Financial institutions will be afforded a safe harbor for exercising discretion in placing a hold on distributions (although the proposal does not create a duty to do so).
Whether this proposal is a welcome new tool in the fight against elder abuse or an additional cumbersome regulatory regime for financial institutions to navigate will depend on the specific details contained in the full proposal, which have not yet been made public. Customers and financial institutions will be allowed to submit input on the proposal once FINRA issues a regulatory notice seeking comment. The notice is expected in the next few weeks, but specific timing has not been announced.
A Shifting Burden
Over the past 10 years or so, there has been a move by many state legislatures to shift the burden of identifying and raising alerts about suspected elder abuse to financial institutions. As a result, in many states, including California (see Welfare and Institutions Code §15630.1), financial institutions are mandated reporters of elder abuse. However, options are somewhat limited once a financial institution has made its report. Privacy laws typically limit the ability of the institution to report to family members who might be in a position to bring restraining orders or a protective action, such as a conservatorship. Since abusers typically spend money as soon as they get it, time is of the essence. As a result, the FINRA proposal could represent a powerful new tool in detecting and combatting financial elder abuse.
On the other hand, the proposal could result in the unnecessary delay in legitimate transactions or additional liability for financial institutions if the details of the proposal are not specific enough.
The proposal comes as FINRA gives more attention to issues affecting seniors. For instance, in April, FINRA established the FINRA Securities Helpline for Seniors – HELPS, where seniors can receive assistance from FINRA staff with questions and issues related to brokerage accounts and investments.
While the true effectiveness of the proposal will not be fully known until the notice is issued, making it available for public comment, it is positive that FINRA is considering these issues. Financial institutions and consumers are highly encouraged to consider weighing in.
The Mickey Rooney Project
In addition, financial institutions should be aware of Holland & Knight's Mickey Rooney Financial Elder Abuse Pro Bono Project, a firmwide pro bono project in which the firm assists victims of financial elder abuse in stopping the abuse and recovering funds.
The pro bono effort was established at the request of the late actor as Holland & Knight assisted Rooney himself escape elder abuse, ultimately recovering a multimillion-dollar judgment on his behalf. Rooney's riveting testimony before the U.S. Senate Special Committee on Aging brought much needed attention to a rarely talked about problem, and Rooney implored attorneys to consider taking on these cases.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.