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Difficulty: HardFinancial Exploitation of Senior Investors and Vulnerable Adults

A registered representative suspects that a 72-year-old client is the victim of financial exploitation after receiving instructions from the client to immediately wire $45,000 out of the account to an unverified third party while simultaneously placing a limit order to purchase corporate bonds within the account. Under FINRA Rule 2165 (Financial Exploitation of Specified Adults), which of the following statements accurately describes the scope of authority granted to the member firm?

  1. The firm may place a temporary hold on the wire transfer of funds, but FINRA Rule 2165 does not grant authority to place a hold on the trade execution for the corporate bonds.Answer
  2. B
    The firm has the regulatory authority to place a temporary hold on both the outgoing wire transfer and the execution of the corporate bond purchase order.
  3. C
    The firm must freeze all trading and transfer activity in the entire account for an initial period of 30 business days while conducting an internal review.
  4. D
    The firm is required to execute the wire transfer of funds immediately as instructed but must delay the bond purchase order until receiving written authorization from FINRA.

Answer

The firm may place a temporary hold on the wire transfer of funds, but FINRA Rule 2165 does not grant authority to place a hold on the trade execution for the corporate bonds.
Under FINRA Rule 2165, member firms and associated persons who reasonably suspect financial exploitation of a specified adult (individuals aged 65+ or vulnerable adults 18+) may place a temporary hold on the disbursement of funds or securities from the account. However, this safe harbor is limited strictly to disbursements. It does not authorize a firm to place a temporary hold on securities trade executions, such as an order to buy corporate bonds.

Step-by-Step Solution

1
Identify the applicability of FINRA Rule 2165
The client is 72 years old, which qualifies them as a 'specified adult' under FINRA Rule 2165 (individuals aged 65 and older, or persons 18 and older with mental/physical impairments).
The rule applies when there is a reasonable suspicion of financial exploitation of a specified adult.
2
Distinguish between disbursements and trade executions
FINRA Rule 2165 safe-harbor protections apply strictly to temporary holds placed on disbursements of funds or securities moving out of the account.
The rule explicitly does not cover or permit temporary holds on trade executions (buying or selling securities within the account).
3
Evaluate the firm's authorized actions for the two requests
The firm may place a temporary hold on the $45,000 outgoing wire transfer, but it cannot use Rule 2165 to refuse or delay executing the client's corporate bond purchase order.
Holding disbursements protects account assets from leaving the firm due to fraud, whereas trade executions keep assets inside the account.

Key Concept

Scope of FINRA Rule 2165 Temporary Disbursement Holds vs. Trade Executions
Estimated Time:2m 0s
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults