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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
The review indicated that FINRAs steps to protect seniors have provided helpful and effective tools in the fight against financial exploitation, but it also suggested some additional tools, guidance and rule changes. In October 2020, FINRA published Regulatory Notice 2034 October 2020: 1
Summarizing the retrospective rule review process, including the predominant themes that emerged from Retrospective Review Stakeholder feedback; 2 seeking comment on proposed amendments to Rule 2165 to further address suspected financial exploitation of senior investors and other specified adults; and 3 providing guidance to aid member firms and senior investors and other specified adults.15

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Rule 2165
Rule 2165 is the first uniform national standard for placing temporary holds on disbursements to address suspected financial exploitation.16 Rule 2165
permits a member firm to place a temporary hold on a disbursement of funds or securities from the account of a specified adult 17 customer when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, has been attempted or will be attempted. Prior to the adoption of Rule 2165, some member firms expressed concern that placing a temporary hold on suspicious disbursements was not explicitly permitted by FINRA rules.
To address these concerns, Rule 2165
provides member firms and their associated persons with a safe harbor from FINRA Rules 2010 Standards of Commercial Honor and Principles of Trade, 2150 Improper Use of each top-level non-nested question. Therefore, unless indicated otherwise, the reader can assume that the percentages are based on approximately 190 responses.
15 The proposed amendments to Rule 2165 set forth in Regulatory Notice 2034 are referred to herein as the Notice 2034 Proposal.
16 See Securities Exchange Act Release No. 79964
Feb. 3, 2017, 82 FR 10059 Feb. 9, 2017 Notice of Filing of Partial Amendment No. 1 and Order Granting Accelerated Approval of File No. SR
FINRA2016039.
17 The definition of specified adult in Rule 2165 covers those investors who are particularly susceptible to financial exploitation. A specified adult is A a natural person age 65 and older or B a natural person 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. See Rule 2165a1. Supplementary Material .03 to Rule 2165 provides that a member firms reasonable belief that a natural person age 18 and older has a mental or physical impairment that renders the individual unable to protect his or her own interests may be based on the facts and circumstances observed in the member firms business relationship with the person.

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Customers Securities or Funds;
Prohibition Against Guarantees and Sharing in Accounts and 11870
Customer Account Transfer Contracts when member firms exercise discretion in placing temporary holds on disbursements of funds or securities from the accounts of specified adults consistent with the requirements of Rule 2165. FINRA encourages member firms to take advantage of the Rule 2165 safe harbor where there is a reasonable belief of customer financial exploitation.
Rule Safeguards Rule 2165 also includes important safeguards that are designed to ensure that there is not a misapplication of the rule, including the requirements that:
1 A member firm provide notification of the hold and the reason for the hold to all parties authorized to transact business on the account, including the customer and the customers trusted contact person no later than two business days after the date that the member firm first placed the hold; 18
2 A member firm that places a hold pursuant to the rule immediately initiate an internal review of the facts and circumstances that caused the member to reasonably believe that the financial exploitation of the specified adult has occurred, is occurring, has been attempted, or will be attempted; 19
3 In addition to the general supervisory and recordkeeping requirements of FINRA Rules 3110, 3120, 3130, 3150, and Rule 4510 Series, a member relying on the rule establish and maintain written supervisory procedures reasonably designed to achieve compliance with the rule, including, but not limited to, procedures related to the identification, escalation and reporting of matters related to the financial exploitation of specified adults; 20
4 Any request for a hold be escalated to a supervisor, compliance department or legal department rather than allowing an associated person handling an account to independently place a hold; 21
5 A member firm relying on the rule develop and document training policies or programs reasonably designed to ensure that associated persons comply with the requirements of the rule; 22 and 6 A member firm relying on the rule retain records related to compliance 18 See
Rule 2165b1B.
Rule 2165b1C.
20 See Rule 2165c1.
21 See Rule 2165c2.
22 See Supplementary Material .02 to Rule 2165.
19 See
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with the rule, which shall be readily available to FINRA, upon request.23
Importantly, a temporary hold pursuant to Rule 2165 may be placed on a particular suspicious disbursements e.g., a payment related to a commonly known scam, such as a lottery scam but not on non-suspicious disbursements e.g., a regular mortgage payment or assisted living facility payment.
Responding to Suspected Financial Exploitation Temporary holds on disbursements have played a critical role in providing member firms a way to quickly respond to suspicions of financial exploitation before potentially ruinous losses occur for the customer. For example, FINRAs report for the five-year anniversary of the FINRA Securities Helpline for Seniors highlights several matters that illustrate the positive impact of placing temporary holds on disbursements to address financial exploitation.24 The matters include temporary holds placed by member firms to prevent senior investors from losing:
$200,000 representing approximately two-thirds of the investors account related to a Central Intelligence Agency CIA lawsuit scam;
$10,000 in a lottery scam;
$60,000 in a romance scam; and $50,000 to financial exploitation by a brother-in-law.
Proposed Amendments to Rule 2165
The retrospective review indicated that Rule 2165 has been an effective tool in the fight against financial exploitation,25 but supported amendments to permit member firms to:
1 Extend a temporary hold on a disbursement of funds or securities or a transaction in securities for an additional 30-business days if the member firm has reported the matter to a state regulator or agency or a court of 23 See
Rule 2165d.
Protecting Senior Investors 20152020: An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices Apr. 2020 Senior Helpline Anniversary Report.
25 During exams in 2019 focusing on Rule 2165, FINRA observed that large firms were more likely than small firms to place temporary holds pursuant to Rule 2165. Some member firms that declined to use the safe harbor cited litigation risks associated with placing temporary holds or in evaluating whether a customer is being financially exploited.
This is consistent with FINRAs survey responses with large firms indicating that they had placed a temporary hold pursuant to the rule in a significantly larger percentage than mid-size or small firms. Thirty-one survey respondents had placed a temporary hold pursuant to Rule 2165.
Eighty-four percent of large firm respondents had placed a hold pursuant to Rule 2165, while only 6%
of all other sized firm respondents had placed a hold pursuant to Rule 2165.
24 See
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