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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices competent jurisdiction; and 2 place a temporary hold on a securities transaction where there is a reasonable belief of financial exploitation.

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Hold Period Rule 2165 currently allows a member firm to place a temporary hold on a specified adult customers account for up to 25-business days if the criteria in the rule are satisfied. More specifically, the temporary hold authorized by Rule 2165 would expire not later than 15business days after the date that the member first placed the temporary hold on the disbursement of funds or securities, unless otherwise terminated or extended by a state regulator or agency or court of competent jurisdiction.26 In addition, provided that the member firms internal review of the facts and circumstances supports its reasonable belief that the financial exploitation of the specified adult has occurred, is occurring, has been attempted or will be attempted, the rule permits the member to extend the temporary hold for an additional 10business days, unless otherwise terminated or extended by a state regulator or agency or court of competent jurisdiction.27
Retrospective Review Stakeholders and commenters to the Notice 2034
Proposal generally supported extending the current 25-business day hold period to provide member firms with a longer period to resolve matters.28 These Retrospective Review Stakeholders and commenters to the Notice 2034
Proposal indicated that the current period may not be sufficient when a matter is under consideration by a state regulator, state agency or court. Notably, this view was shared by NAPSA and the Philadelphia Financial Exploitation Task Force in comments to Regulatory Notice 1927 and the Notice 2034
Proposal, with both commenters stating that adult protective services APS
agencies, state regulators and law enforcement typically need more time to conduct thorough investigations. In contrast, in comments to Regulatory Notice 1927 and the Notice 2034
Proposal, NASAA supported retaining the current 25-business day period, which aligns with the hold period provided in the NASAA Model Act to Protect Vulnerable Adults from 26 See
Rule 2165b2.
Rule 2165b3.
28 See, e.g., comments to the Notice 2034
Proposal from CAI, Cambridge, Commonwealth, Edward Jones, Fidelity, FSI, IRI, Miami Investor Rights Clinic, MMLIS, NAPSA, Norcross, Philadelphia Financial Exploitation Task Force, SIFMA and Wells Fargo.
27 See
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Financial Exploitation NASAA Model Act.29
During exams in 2019 focusing on Rule 2165, member firms expressed to FINRA the need for additional time to conduct investigations and resolve matters.30 Member firms were asked in the survey distributed to member firms about possible impediments to resolving a matter within the current 25-business day hold period provided by Rule 2165.
Approximately 53% of survey respondents stated that they had been unable to resolve a matter within the 25business day period. The most common reason was that the matter was under consideration by a state agency such as APS or a court. Other common reasons included: 1 The customer did not respond to inquiries from the firm; or 2
the customer did not believe that he or she was being financially exploited. For matters that took longer to resolve than the 25-business day period, approximately 35% of survey respondents indicated that it took on average 2650 days to resolve the matter and approximately 59% of survey respondents indicated that it took on average 51100 days to resolve the matter.
FINRA recognizes that placing or extending a temporary hold on a disbursement is a serious step for a member and the affected customer.
While FINRA recognizes that customers may be affected by temporary holds, the costs of financial exploitation can be devastating to customers, particularly older customers who rely on their savings and investments to pay their living expenses and who may not have the ability to offset a significant loss over time. Furthermore, the rules safeguards are designed to ensure that there is not a misapplication of the rule.
To provide member firms with additional time to resolve matters and for APS agencies, state regulators and law enforcement to conduct thorough investigations, FINRA is proposing amending Rule 2165 to permit extending a temporary hold on a disbursement of funds or securities or a transaction in securities for an 29 The NASAA Model Act is available at https
www.nasaa.org/industry-resources/senior-issues/
model-act-to-protect-vulnerable-adults-fromfinancial-exploitation/.
30 In 2019, FINRA identified as an examination priority: 1 Reviewing member firms controls regarding their obligations under trusted contact person-related amendments to FINRA Rule 4512
and Rule 2165, to the extent that firms anticipate placing temporary holds on disbursements pursuant to the Rule 2165 safe harbor, including whether firms have clearly defined policies and procedures or practices; and 2 learning about firms early experiences with these provisions. See 2019 Annual Risk Monitoring and Examination Priorities Letter Jan. 22, 2019.

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additional 30-business days if the member firm has reported the matter to a state regulator or agency or a court of competent jurisdiction.31
In addition, Rule 2165d requires members to retain records related to compliance with the rule, which shall be readily available to FINRA, upon request. To evidence compliance with Rule 2165 in placing or extending a temporary hold, FINRA is proposing to require that a member firm retain records of the reason and support for any extension of a temporary hold, including information regarding any communications with or by a state regulator or agency of competent jurisdiction or a court of competent jurisdiction.32
Transactions in Securities While placing a hold pursuant to Rule 2165 stops funds or securities from leaving a customers account, the rule currently does not apply to transactions in securities.33 Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal generally supported extending Rule 2165 to permit a member firm to place a temporary hold on a transaction in securities when the firm has a reasonable belief that the customer is being financially exploited.34 Even if a temporary hold is placed on a disbursement out of the customers account, these Retrospective Review Stakeholders and commenters to the Notice 2034 Proposal noted that executing a related transaction may result in significant financial consequences for the customer e.g., adverse tax consequences, surrender charges, the inability to regain access to a sold investment that has been closed to new investors or trading by a perpetrator in inappropriate high risk or illiquid securities.
Currently, there are 34 states with laws that allow investment advisers or broker-dealers to place some form of hold. Several Retrospective Review 31 The 30-business day hold period in proposed Rule 2165b4 would be in addition to the 15business day hold in Rule 2165b2 and the 10business day hold in Rule 2165b3.
32 See proposed Rule 2165d6.
33 For example, Rule 2165 currently would not apply to a customers order to sell his shares of a stock. However, if a customer requested that the proceeds of a sale of shares of a stock be disbursed out of his account at the member firm, then the rule could apply to the disbursement of the proceeds where the customer is a specified adult and there is reasonable belief of financial exploitation.
34 See, e.g., comments to the Notice 2034
Proposal from CAI, Cambridge, Commonwealth, Edward Jones, Fidelity, FSI, IRI, LPL, Miami Investor Rights Clinic, MMLIS, NAPSA, Norcross, Philadelphia Financial Exploitation Task Force, SIFMA and Wells Fargo.

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