First, firms will be required to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account. Second, firms will be permitted to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation.
According to FINRA's announcement, here, "These rules will provide firms with tools to respond more quickly and effectively to protect seniors from financial exploitation. This project included input and support from both investor groups and industry representatives and it demonstrates a shared commitment to an important, common goal – protecting senior investors," said Robert W. Cook, FINRA President and CEO.
According to FINRA, The trusted contact person is intended to be a resource for firms in handling customer accounts, protecting assets and responding to possible financial exploitation of any vulnerable investors. The new rule allowing firms to place a temporary hold provides them and their associated persons with a safe harbor from certain FINRA rules. This provision will allow firms to investigate the matter and reach out to the customer, the trusted contact and, when appropriate, law enforcement or adult protective services, before disbursing funds when there is a reasonable belief of financial exploitation. It is a critical measure because of the difficulty investors face in trying to recover funds that they have inadvertently sent to fraudsters and scam artists.
FINRA will also amend its New Account Application Template, a voluntary model brokerage account form that is provided as a resource to firms when they design or update their new account forms, to capture trusted contact person information.
The Rule change is effective February 5, 2018.
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