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Difficulty: HardFinancial Exploitation of Senior Investors and Vulnerable Adults

A 78-year-old account holder requests an immediate cash transfer to a foreign bank account and simultaneously submits an order to liquidate mutual fund shares. The broker-dealer suspects the customer is a victim of financial exploitation by a new acquaintance. In evaluating compliance duties under FINRA Rule 2165 and FINRA Rule 4512, which of the following statements correctly describe the firm's allowable actions? (Select all that apply.)

  1. The member firm may place a temporary hold on the outward transfer of cash funds from the customer's account.Answer
  2. The member firm may communicate with the customer's designated trusted contact person to discuss suspicions surrounding the financial request.Answer
  3. C
    The member firm is authorized under Rule 2165 to place a temporary hold on the execution of the customer's mutual fund sell order.
  4. D
    The member firm may maintain the initial temporary disbursement hold for up to 30 business days prior to seeking a court extension.

Answer

The member firm may place a temporary hold on the outward transfer of cash funds from the customer's account, and the firm may communicate with the customer's designated trusted contact person to discuss suspicions surrounding the financial request.
Under FINRA Rule 2165, member firms have the authority to place a temporary hold on disbursements of funds or securities if they reasonably suspect financial exploitation of a specified adult (age 65+ or 18+ with impairment). Furthermore, under FINRA Rules 4512 and 2165, firms are permitted to contact the customer's designated trusted contact person to share details regarding potential financial exploitation.

Step-by-Step Solution

1
Identify the applicable regulatory frameworks for senior investor protection.
FINRA Rule 2165 governs temporary disbursement holds, and FINRA Rule 4512 governs trusted contact person disclosures for specified adults (defined as individuals aged 65 and older or 18+ with impairments).
Establishing rule applicability confirms what actions the firm is permitted to take.
2
Evaluate the scope of FINRA Rule 2165 temporary hold authority.
Rule 2165 permits a temporary hold on disbursements of funds or securities, but does NOT permit freezing trade executions.
Disbursement holds prevent assets from leaving the firm, while trade execution requests remain separate transaction orders.
3
Evaluate notification rules and hold duration limitations.
Firms may reach out to the designated trusted contact person. Initial disbursement holds under Rule 2165 are limited to 15 business days.
Rule 4512 permits trusted contact outreach, while Rule 2165 specifies a strict 15-business-day initial hold limit.

Key Concept

FINRA Rule 2165 Financial Exploitation Disbursement Holds vs. Trade Execution
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults