SIFMA Recommends Changes to FINRA Proposal Addressing Risks to Seniors
Commentary by Steven Lofchie
SIFMA recommended changes to FINRA's proposed rules contained in Regulatory Notice 15-37 addressing the financial exploitation of seniors and other vulnerable adults.
In a comment letter, SIFMA offered the following changes to Proposed Rule 2165 ("Financial Exploitation of Specified Adults"):
The Reporting Process:
- It is important to include government agencies and other financial institutions as part of the permissible reporting structure to ensure the highest possible level of investor protections.
- Reporting to a trusted contact or an immediate family member should be voluntary and separate from the placement of a hold.
- The third party contact provisions should be inclusive and all contact options should be available once there is a reasonable belief of financial exploitation.
- The immediate internal review required by the proposed reporting process is unnecessarily duplicative and confusing.
The Safe Harbor Provisions:
- The safe harbor provisions should provide explicit relief from FINRA rules.
- In order to ensure that senior investors are fully protected, the safe harbor provisions should be extended to member firms when an investigation (governmental or internal) reveals financial exploitation and certain other necessary extensions of the Proposed Rule 2165.01 safe harbor.
Timeframes:
- The length of the hold should be extendable in accordance with other state or federal laws or by agreement.
- The two business day limit to contact all parties authorized to transact business on an account is too short.
The Scope of the Proposed Rules:
- A focus on transactions would provide significantly greater investor protections.
- The obligations and safe harbor of the proposed rules should apply at the firm-level, not the individual level.
Definitions:
- "Account" should be expanded to include accounts for which a specified adult is a named beneficiary.
- The definition of "immediate family member" should be expanded.
- The age utilized in the definition of "Specified Adult" should be changed to 60.
- Clarification is needed in the definition of "Qualified Person."
- Clarification is requested in the definition of "Specified Adult."
SIFMA also made the following comments regarding Rule 4512 ("Customer Account Information"):
- FINRA should provide guidance on the collection of a trusted contact, as opposed to mandating its collection.
- There is no need to limit the information that could be shared with a designated trusted contact.
- Alternatively, FINRA should clarify Proposed Rule 4512(a)(1)(f) and 4512.06.
Commentary
As numerous as SIFMA's comments are on FINRA's proposal, the problems with the proposal appear to be even more intractable and fundamental than addressed here. A self-regulatory organization, such as FINRA, simply should not put its members under any obligation, or seeming obligation, to violate the law by refusing to disburse money in accordance with instructions that are legally binding. This is not to deny the potential existence of a real problem concerning the need to protect senior investors. But when the proposed solution to the problem involves actions, or non-actions, that require breaking the law as it now stands, then the proposed solution is definitely not a good one. Rather, FINRA should lobby Congress as to the need for a legislative solution which does not require its member firms to act in violation of legal obligations.