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Question

Difficulty: HardFinancial Exploitation of Senior Investors and Vulnerable Adults

An investment executive receives an urgent instruction from a 75-year-old long-term customer to liquidate a $100,000 portfolio of municipal bonds and immediately wire the cash proceeds to a foreign bank account registered under a third party's name. Suspecting potential financial exploitation, the broker-dealer's compliance department reviews their options under FINRA rules. Which of the following actions is the firm authorized to take regarding this situation?

  1. The firm may place a temporary hold on the wire disbursement of funds for up to 15 business days, but it must still execute the customer's order to sell the municipal bonds.Answer
  2. B
    The firm may place a temporary hold on both the trade execution of the securities and the subsequent cash disbursement for a period of up to 30 calendar days.
  3. C
    The firm must complete the requested wire transfer unless it receives prior written approval from FINRA within 2 business days to freeze the customer's account.
  4. D
    The firm may hold the cash disbursement for up to 15 business days, provided it deliberately refrains from notifying the designated trusted contact person to maintain privacy.

Answer

The firm may place a temporary hold on the wire disbursement of funds for up to 15 business days, but it must still execute the customer's order to sell the municipal bonds.
Under FINRA Rule 2165, a broker-dealer that reasonably suspects financial exploitation of a specified adult (age 65+ or 18+ with impairment) may place a temporary hold on the disbursement of funds or securities for up to 15 business days. Crucially, this regulatory safe harbor applies only to disbursements of assets out of the account, not to trade execution orders. Therefore, the firm must execute the requested bond sale while holding the requested wire transfer.

Step-by-Step Solution

1
Determine the applicability of FINRA protection rules based on customer demographics.
The client is 75 years old, qualifying as a 'specified adult' under FINRA Rule 2165 (individuals aged 65 and older, or 18+ with mental/physical impairments).
Rule 2165 provides safe-harbor protections for broker-dealers dealing with potential financial exploitation of vulnerable populations.
2
Evaluate the regulatory boundaries regarding disbursement holds versus trade execution.
Rule 2165 permits a broker-dealer to place a temporary hold specifically on the *disbursement* of cash or securities leaving the account. It does NOT authorize holding or blocking trade executions.
Freezing trade orders exposes the client to market movement risk, whereas blocking outgoing disbursements directly safeguards assets from unauthorized transfer.
3
Verify initial timeframe restrictions for temporary disbursement holds.
The initial hold on disbursements can last up to 15 business days while the member firm conducts an internal review.
FINRA Rule 2165 establishes 15 business days as the baseline initial hold period.

Key Concept

FINRA Rule 2165 Scope of Temporary Holds (Disbursements vs. Trade Executions)
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults