Elderly Financial Abuse Targeted By Proposed FINRA Rules

New rules have been proposed by a group of non-governmental financial industry regulators, which are designed to reduce the risk of elderly financial fraud, abuse and exploitation. 

The Financial Industry Regulatory Authority (FINRA) issued a press release last week, announcing it has submitted proposed rules to the Securities and Exchange Commission (SEC), seeking to reduce the risk of financial exploitation of seniors and other vulnerable adults. The rules were first proposed a year ago, and must be approved by the SEC before being implemented.

The elderly financial exploitation prevention rule would apply to individuals 65 years of age or older, as well as those with mental or physical impairments that makes them unable to protect their own interests. Financial institutions would be required to make a reasonable effort to get information for a “Trusted Contact” when an elderly investor is opening a new account or updating an existing one. The contact would be unable to transact business, but would be alerted in case of suspected abusive activity on the account.

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In addition, the rules would allow certain qualified individuals in the firms to place a short-term, temporary hold on account disbursements when financial exploitation is suspected. Such holds would be subject to an immediate internal review and immediate notification of the account holder, as well as the trusted contact and anyone authorized to conduct business on the account.

“If approved by the SEC, this proposed rule change will equip firms with more effective tools to better protect their senior and other vulnerable customers from financial exploitation,” FINRA’s Executive Vice President and Chief Legal Officer, Robert L.D. Colby, said in the press release. “With the aging of the investor population, FINRA believes it is important to put these protections in place for our seniors and other vulnerable investors.”

The SEC will determine whether the proposed rule meets the requirements of the Securities Exchange Act of 1934 and may ask for changes or amendments before approval.

FINRA is a non-governmental agency that acts as a self-regulatory agency for investment firms. It was created in July 2007, as a successor to the National Association of Securities Dealers, handling all disputes between investors and stockbrokers or other financial firms. FINRA arbitrators resolve stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

The proposed rules follow a research report released by FINRA in March 2015, which found that investment fraud cases often result in non-financial harm to clients in addition to the obvious financial problems.

According to the findings, 65% of financial fraud victims reported experiencing at least one type of non-financial cost, with half of those citing stress. Thirty-eight percent of victims reported suffering sleeping problems, and 35% reported having bouts of depression. The larger the amount of money lost to fraud, the greater the number of non-financial problems likely to be suffered by the victim, according to the report.

The victims also suffered other financial costs that were indirectly related to their losses, such as late fees, legal costs, overdraft charges and similar.


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