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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
persons by customers. FINRA has taken steps to encourage customers to name trusted contact persons. For example, the SECs Office of Investor Education and Advocacy and FINRA collaborated on an Investor Bulletin that helps customers understand the purpose of designating a trusted contact person for brokerage accounts, and encourages customers to designate a trusted contact person.60 In addition, in April 2018, FINRA published a similar article providing information on the trusted contact person-related amendments to Rule 4512 and Rule 2165 for investors and member firms.61 FINRA and the FINRA Investor Education Foundation have highlighted these articles on FINRA-managed social media channels, including Facebook and Twitter, and staff regularly discuss the benefits of designating a trusted contact when speaking with individual investors.

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Reporting Requirements Several commenters expressed concern that Rule 2165s safe harbor does not extend to complaints reportable on Forms U4 Uniform Application for Securities Industry Registration or Transfer or U5 Uniform Termination Notice for Securities Industry Registration, or pursuant to Rule 4530 about an associated person whose actions were within the safe harbor and stated that some member firms and associated persons may choose not to place a hold pursuant to Rule 2165 because of concerns about a possible customer complaint.62 These commenters requested guidance on when a Rule 2165-related complaint would be reportable and supported developing a specific problem code for reporting any Rule 2165-related complaint to FINRA pursuant to FINRA
Rule 4530. FSI suggested that FINRA
consider additional protections for financial professionals so they can confidently act when there is possible exploitation that could have long-term negative consequences on a clients financial future and overall well-being.
As discussed in Regulatory Notice 20
34, to date, based on FINRAs review of reported complaints, member firms have not reported a complaint on Forms U4
or U5 or pursuant to Rule 4530 related 60 The Investor Bulletin was published in March 2020 and is available on the SECs website at https www.investor.gov/introduction-investing/
general-resources/news-alerts/alerts-bulletins/
investor-bulletins-trusted-contact and on FINRAs website at https www.finra.org/investors/insights/
consider-adding-trusted-contact-to-your-account.
61 FINRA made a downloadable print version of the article available at https www.finra.org/sites/
default/files/Protecting-Seniors-From-FinancialExploitation_0.pdf.
62 See Cambridge, FSI and SIFMA.

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to placing a temporary hold pursuant to Rule 2165. Moreover, survey respondents 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.
FINRA does not currently plan to propose guidance regarding when a Rule 2165-related complaint would be reportable or develop a specific problem code for reporting any Rule 2165-related complaint to FINRA pursuant to FINRA
Rule 4530. In considering whether a complaint is reportable, member firms should use the existing publicly available guidance. FINRA may reconsider this issue or develop a specified problem code for reporting any Rule 2165-related complaint to FINRA pursuant to FINRA Rule 4530 if complaints are reported in the future and they appear to have a detrimental impact on the protection of seniors and other vulnerable adults.
Customer Actions Cambridge supported extending the safe harbor provided by Rule 2165 to protecting member firms and registered representatives from customer actions as a result of steps taken by a member firm pursuant to Rule 2165. FINRA
previously addressed this issue when adopting Rule 2165, noting that member firms today make judgments with regard to making or withholding disbursements and already face litigation risks with respect to these decisions.63 Rule 2165
is designed to provide regulatory relief to member firms by providing a safe harbor from FINRA rules for a determination to place a hold. Some states may separately provide immunity to member firms under state law.
Scope of Rule 2165
Because some state temporary hold laws cover customers younger than 65
years of age, LPL suggested that FINRA
amend the definition of specified adult in Rule 2165a1 to include persons 60 years of age and older. In adopting Rule 2165, FINRA solicited feedback regarding whether the ages used in the definition of specified adult in proposed Rule 2165 should be modified or eliminated. As discussed in the rule filing proposing Rule 2165, some commenters suggested including an age lower than 65 and some commenters suggested including an age over 65 in the definition.64 The inclusion of persons 65 and older in the definition reflects, in part, that federal agencies, FINRA and NASAA have focused on persons age 65 and older for 63 See 64 See
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various senior initiatives. In addition, the definition of specified adult in Rule 2165a1 also includes persons age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.
Manabat stated that FINRA rules protecting senior investors should apply to non-U.S. investors. For clarity, FINRA rules apply to U.S. and non-U.S.
customers of member firms.
NAPSA and the Philadelphia Financial Exploitation Task Force recommended that investment companies, such as mutual funds, be permitted to place temporary holds. In 2018, staff in the SECs Division of Investment Management issued a noaction letter to the Investment Company Institute stating that the staff would not recommend enforcement action if, consistent with the conditions in the letter, a transfer agent, acting on behalf of a mutual fund, temporarily delayed for more than seven days the disbursement of redemption proceeds from the mutual fund account of a specified adult held directly with the transfer agent based on a reasonable belief that financial exploitation of the specified adult has occurred, is occurring, has been attempted, or will be attempted.65 The no-action letter permits mutual fund transfer agents to protect specified adult shareholders from financial exploitation to the same extent that broker-dealers may do so currently under FINRA Rule 2165.
If a member firm places a temporary hold, Rule 2165 requires the member to immediately initiate an internal review of the facts and circumstances that caused the member to reasonably believe that financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted. FSI recommended that FINRA provide additional guidance to member firms on conducting these internal reviews. FSI stated that state regulators and agencies have the appropriate expertise to conduct these types of investigations and member firms work cooperatively to provide state regulators and agencies with requested information. FSI stated that member firms have access to internal records that evidence the customers regular trading and account disbursement activity, but firms do not want to, for example, front-run and jeopardize a criminal investigation by trying to contact and interview witnesses.
65 See Investment Company Institute, SEC NoAction Letter June 1, 2018.

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