FINRA Rule 2165 Allows Members to Put Holds on Client Accounts
In another attempt to help older investors get the protection they need, the Financial Industry Regulatory Authority (FINRA) recently established Rule 2165 (Financial Exploitation of Specified Adults). This regulation allows member financial professionals to place holds on accounts in the event that exploitation is suspected.
How Rule 2165 works
Rule 2165 concerns “specified adults,” which are defined by FINRA as people 65 and older or someone 18 or older who a “member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.”
A hold can be put on the disbursement of money or securities from a specified adult’s account if:
• A member thinks exploitation has happened, is happening, or could happen
• A member offers notification of the temporary hold and the reason for it orally or in writing no later than two business days after it was placed to:
º All parties with authorization to utilize the account, except if one of those parties is believed to be the one involved in the exploitation
º The trusted contact person, unless he or she is unavailable or the member thinks he or she is perpetrating the exploitation
When a hold is put on an account, it will only be in effect for up to 15 days after the initial placement date. It may be terminated earlier or extended by a state regulator, agency, or court. If a FINRA member will rely on Rule 2165, he or she has to “establish and maintain written supervisory procedures reasonably designed to achieve compliance with this Rule, including, but not limited to, procedures related to the identification, escalation and reporting of matters related to the financial exploitation of Specified Adults.”
In addition, members are required to retain any records pertaining to compliance with Rule 2165, which FINRA may ask for. The records need to include:
• The request for disbursement that could indicate financial exploitation and the hold that resulted
• Why the hold was placed
• The name and title of who authorized the hold
• Notification to any relevant parties
• A review of all facts and circumstances related to the exploitation and subsequent hold
When Rule 2165 doesn’t apply
With regard to transactions in securities, Rule 2165 won’t apply. If a customer ordered the sale of shares of a stock and a member was concerned about exploitation, the sale couldn’t be stopped. However, if the customer wanted the money from that sale disbursed out of his or her account, a hold could be utilized that would stop this disbursement.
In addition, FINRA says that a blanket hold should not be put on an account if a questionable disbursement is less than all assets in the account. Every disbursement needs to be examined individually, as they may not all be related to instances of exploitation.
While Rule 2165 can be helpful going forward, it doesn’t have any effect on people who are already victims of financial fraud. It also relies on the vigilance of ethical financial professionals who may have many clients. If you suspect you or someone you know has been exploited, you should take action. Contact the Silver Law Group to talk to an elder financial fraud attorney to learn about your rights.
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