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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
Pittsburgh Clinic stated that the proposed longer hold period increases the possibility that a member firm could misuse a hold to harm an investor.
Pittsburgh Clinic stated that the proposed hold period is too long because customers may need the funds to pay for living expenses. Pittsburgh Clinic also expressed concern that Rule 2165 does not include a reporting requirement unless a member firm wants to avail itself of the additional 30business day extension.
NASAA believes that the current 25business day hold period, with the authority for state regulators or agencies or the courts to terminate or extend, is the better approach as it provides time to conduct the investigation and avoids unintended hardships from lengthy delays. Moreover, NASAA supports involving state regulators or agencies or the courts within the initial 15-business day hold period specified in Rule 2165b2.
Information gathered during the assessment phase of the retrospective review, including discussions during exams in 2019 focusing on Rule 2165
and a survey to FINRA membership, supports the need for additional time to conduct investigations and resolve matters. NAPSArepresenting APS
programs which play a critical role in investigating suspicions of financial exploitationalso expressed the need for additional time to conduct investigations. NAPSAs data that the average investigation duration of reported matters to the NAMRS is 52.6
days also highlights the need for a longer period to conduct investigations and resolve matters.
Retrospective Review Stakeholders and comments to the Notice 2034
Proposal indicated that some matters can be quickly resolved after placing a temporary hold e.g., by explaining to the customer that the activity and requested disbursement fits a commonly known scam. However, 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. These complex matters often involve information gathering and sharing by the firm and the state agency or regulatory investigating the matter.
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 for an additional 30 business days if the
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member firm has reported the matter to a state agency or a court of competent jurisdiction. Extending the hold period as proposed is intended to address the complex matters that need additional time to resolve. In addition, some states mandate reporting of suspected financial exploitation by financial institutions, including broker-dealers, within a specified period of time.
FINRA expects member firms to comply with all applicable state requirements, including reporting requirements.
In addition, FINRA agrees with the commenters who stressed the need for a temporary hold not to interfere with non-suspicious disbursements that are needed for the customers expenses. A
temporary hold pursuant to Rule 2165
may be placed only on the suspicious disbursement or transaction if the proposed amendment to extend the rule to transactions is adopted. A temporary hold may not be placed on nonsuspicious disbursements or transactions e.g., a regular mortgage payment.
Commonwealth supported the proposed extension of the temporary hold period and stated that there should be some additional remedy when a matter is not resolved at the end of the hold period. As previously addressed in the rule filing to adopt Rule 2165, if a member firm is unable to resolve an issue due to circumstances beyond its control, there may be circumstances in which a member firm may extend a temporary hold after the period provided under the safe harbor.55
NAPSA and the Philadelphia Financial Exploitation Task Force requested clarification on whether a state regulator or agency of competent jurisdiction would include state or local law enforcement. For purposes of Rule 2165, FINRA would interpret state or local law enforcement to be a state regulator or agency of competent jurisdiction and, accordingly, state or local law enforcement may terminate or extend a temporary hold pursuant to Rule 2165.
SIFMA noted that, depending on the jurisdiction, APS may be a state or local agency and suggested revising proposed Rule 2165b4 to refer to a state regulator, or an agency of competent jurisdiction to more clearly cover local APS. The inclusion of a state regulator or agency of competent jurisdiction in proposed Rule 2165b4 is consistent with the language in current Rule 2165b2 and 3. For purposes of Rule 2165, FINRA would interpret state or local APS to be a state regulator or agency of competent jurisdiction and, 55 See
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accordingly, state or local APS may terminate or extend a temporary hold pursuant to Rule 2165.
Transactions in Securities The majority of commenters supported the proposed amendment to permit member firms to place a temporary hold on a securities transactions where there is a reasonable belief of financial exploitation.56 For example, NAPSA and the Philadelphia Financial Exploitation Task Force applauded the creation of a uniform national standard for placing holds on transactions related to suspected financial exploitation. Miami Investor Rights Clinic stated that substantial damage can result from securities transactions due to financial exploitation and that appropriate policies, procedures, and training can minimize any misapplication Rule 2165.
Edward Jones stated that the financial harm resulting from exploitative transactions can take many forms, including selling long-held investments with low cost basis resulting in a significant tax liability, the sale of fixed income investments with yields more attractive than current rates, and the sale of variable annuities, which could lead to surrender charges. Edward Jones stated that the perpetrator of the exploitation could also utilize the proceeds of these sales to invest in highrisk securities further jeopardizing the financial security of the senior or vulnerable investor. Edward Jones stated that when balanced against the potential financial devastation to the senior or vulnerable investor, the proposal is a natural extension of the current rule that will further minimize the risk of financial harm and provide greater protection for senior and vulnerable investors.
In its comment to Regulatory Notice 1927, PIABA cautioned FINRA against substantive changes to Rule 2165 that might conflict with state laws. However, PIABA noted that the recently adopted state laws allow for holds on securities transactions and disbursements.
Pittsburgh Clinic expressed concern that the proposed extension gives too much authority to member firms with limited oversight and that the customer may bear the risk of loss if firm makes the wrong call in placing a hold.
NASAA stated that if FINRA extends Rule 2165 to permit placing holds on securities transactions, the supervision and documentation requirements under 56 See 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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