Senior Financial Abuse, Exploitation Targeted by Proposed FINRA Rules

Financial industry regulators have proposed new rules that are designed to reduce the risk of financial exploitation of seniors, calling for firms to be more proactive in detecting and stopping possible elderly financial abuse. 

The Financial Industry Regulatory Authority (FINRA) posted the proposed rules late last month, which are designed to address problems that may be encountered with senior investors or account holders, as well as other vulnerable adults. Public comment on the rules will be received by the agency until November 30.

The 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.

The proposed rules require financial institutions 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.

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.

The proposed rules follow an announcement this summer that FINRA would be targeting elder abuse.

At issue are what financial firms should do when presented with transactions by clients with dementia, or who may be being taken advantage of by a caregiver, that could negatively affect their financial status.

If firms fail to promptly act on the client’s request, it could lead to financial ruin or perpetuate ongoing abuse and exploitation. However, if they delay, they may not be able to negotiate the best prices for their clients, or might block or delay a legitimate financial transaction, opening themselves up to lawsuits and potentially regulatory action.

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 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.