New Rules Safeguarding Vulnerable US Investors Take Effect

Josh O'Neill

7 February 2018

Two new rules entered into force on Monday to better protect senior and vulnerable investors from being exploited.

Under the new national standards, crafted by , the investments regulator, firms are now required to “make reasonable efforts” to obtain the name and contact information for a trusted contact person of a client’s account. The rules also give FINRA the power to place a temporary hold on disbursement of funds or securities if there is a “reasonable belief of financial exploitation”, and to notify the trusted contact of the hold.

"These important changes, developed in collaboration with our members, provide firms with tools to respond more quickly and effectively to protect seniors and vulnerable investors from financial exploitation," said Robert Colby, FINRA's chief legal officer. “With the aging of the US population, financial exploitation is a serious and growing problem, and protecting senior investors remains a top priority for FINRA.”

Last year, a poll showed that more than half (61 per cent) of financial advisors in the US had seen or suspected that an elderly client had been abused over money at least once, highlighting the need for legislation to protect the vulnerable, particularly those with cognitive health issues like dementia.

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, as 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 said.