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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
Stakeholders noted that while the NASAA Model Act does not extend to transactions, 20 of those 34 states with approximately half of the U.S.
population have enacted laws permitting investment advisers and broker-dealers to place temporary holds on disbursements and transactions.35
While some state laws permit placing holds on transactions, FINRA is proposing to amend Rule 2165 to create the first uniform national standard for placing holds on securities transactions related to suspected financial exploitation. Under the safe harbor approach, a member firm would be permitted, but not required, to place a temporary hold on a transaction when there is a reasonable belief that the customer is being financially exploited.
FINRA recognizes that placing a temporary hold on a transaction is a serious step for a member firm and the affected customer. But FINRA also recognizes that placing a temporary hold on the underlying transaction may prevent significant negative financial consequences for the customer. These negative financial consequences can result even if a temporary hold is placed on any related disbursement of funds out of the customers account.
Moreover, as discussed above, the rule includes important safeguards designed to avoid misapplication of the rule.
Need for the Proposed Amendments
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Retrospective Review Stakeholders and commenters to the Notice 2034
Proposal consistently indicated the prevalence of and problems associated with financial exploitation of senior investors,36 including the potential for significant and longstanding harm to customers.37 Moreover, Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal generally 35 As of June 2021, the following states permit holds on disbursement and transactions: Arkansas, Arizona, California, Florida, Iowa, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New Mexico, North Dakota, Oklahoma, South Carolina, Texas, Utah, Virginia, Washington and West Virginia.
36 See, e.g., comments to the Notice 2034
Proposal from PIABA. See also Consumer Financial Protection Bureau, Office of Financial Protection for Older Americans, Suspicious Activity Reports on Elder Financial Exploitation: Issues and Trends Feb. 2019 highlighting that SAR filings on elder financial exploitation quadrupled from 2013 to 2017. See also U.S. Securities and Exchange Commission, Office of the Investor Advocate, Elder Financial Exploitation June 2018 providing an overview of studies on the prevalence of senior financial exploitation.
37 See, e.g., discussion in the Senior Helpline Anniversary Report regarding a member firm placing a temporary hold to prevent a senior investor from losing $200,000 representing approximately two-thirds of the investors account related to a CIA lawsuit scam.

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agree that member firms need tools to address suspected financial exploitation.38
As discussed in greater detail in section C infra, some Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal expressed concern that a temporary hold could be harmful to customers or that Rule 2165
could be misused by member firms.
Regarding the potential of customer harm, it is important to consider that Rule 2165 is available only if the member firm has a reasonable belief that the customer is being financially exploited. Moreover, the temporary hold may be placed only on the suspicious disbursement or transaction if the proposed amendment to extend the rule to transactions is approved. Even if the member firm has placed a temporary hold on a suspicious disbursement or transaction pursuant to Rule 2165, a temporary hold may not be placed on non-suspicious disbursements or transactions e.g., a regular mortgage payment.
In evaluating concerns about potential misuse of Rule 2165, neither FINRA nor commenters were able to identify any reported customer complaints on Forms U4 or U5 or pursuant to Rule 4530
related to placing a temporary hold pursuant to Rule 2165. Moreover, respondents to FINRAs survey to member firms indicated that they had not reported a complaint on Form U4 or Form U5 or pursuant to Rule 4530
related to placing any temporary holds.
In addition, neither FINRA nor the states have brought any disciplinary action due to misuse of Rule 2165 or any state temporary hold law.39
The demonstrated and potential benefits of Rule 2165 weigh in favor of the proposed rule change. Notably, Rule 2165 has been used by member firms to address suspected financial exploitation and these temporary holds have prevented significant financial harm to customers.40 Moreover, Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal stressed that, even if a temporary hold is placed on a disbursement of funds or securities, a 38 See, e.g., in comments to the Notice 2034
Proposal the Miami Investor Rights Clinic stated that it fully supports the proposed amendments as they will provide greater protection to seniors and vulnerable adults that may be victims of financial exploitation. IRI also stated that the proposed amendments will better enable firms to prevent the financial exploitation of vulnerable Americans.
39 This lack of disciplinary action by FINRA and the states is also noted in the NASAAs comment letter to the Notice 2034 Proposal.
40 See, e.g., Protecting Senior Investors 2015
2020: An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices Apr. 2020.

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customer can experience significant negative financial consequences if a suspicious transaction is permitted.41
Some Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal believe that the proposed extension of the hold period is too long and could be harmful to customers.42 Commenters to the Notice 2034 Proposal stated that some matters can be quickly resolved after placing a temporary hold, but complex matters that involve investigations by state regulators or agencies or legal actions in a court e.g., financial exploitation of an elderly customer by a family member or caregiver may need additional time to resolve.43 In considering the appropriate time period, it is notable that NAPSA
and the Philadelphia Financial Exploitation Task Forcerepresenting APS programs which play a critical role in investigating suspicions of financial exploitationalso expressed in their comments to the Notice 2034 Proposal the need for additional time to conduct investigations. NAPSAs comment letter to the Notice 2034 Proposal also shared data in support of the need for a longer hold period in Rule 2165 that the average investigation duration of reported matters to the federal National Adult Maltreatment Reporting System NAMRS is 52.6 days.
In considering the proposed extension of Rule 2165 to securities transactions, it is notable that approximately 50% of the U.S. population lives in a state that permits broker-dealers and investment advisers to place holds on suspicious securities transactions pursuant to state law.
These state laws represent a patchwork where some customers may be afforded greater protection from financial exploitation than other customers. In contrast, Rule 2165
provides a uniform national standard for placing temporary holds when there is a reasonable belief of financial exploitation. Moreover, Rule 2165
incorporates numerous safeguards that apply to each temporary hold and that are designed to ensure that there is not a misapplication of the rule.
If the Commission approves the proposed rule change, FINRA will announce the implementation date of the proposed rule change in a Regulatory Notice. The implementation date will be no later than 180 days following publication of the Regulatory 41 See, e.g., comments to the Notice 2034
Proposal from Edward Jones and the Miami Investor Rights Clinic.
42 See, e.g., comments to the Notice 2034
Proposal from NASAA and the Pittsburgh Clinic.
43 See, e.g., comments to the Notice 2034
Proposal from Edward Jones.

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