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Question

Difficulty: HardFinancial Exploitation of Senior Investors and Vulnerable Adults

A compliance officer at a member firm is reviewing an unusual transaction request from a 67-year-old account holder who shows signs of cognitive decline. The customer has instructed the firm to sell $50,000 of equity securities in their account and immediately wire the cash proceeds to a third-party account abroad. If the member firm reasonably suspects financial exploitation, which of the following statements correctly describes the firm's authorized actions under FINRA Rule 2165?

  1. The firm may place a temporary hold on the outgoing wire disbursement of funds, but FINRA Rule 2165 does not provide authority to refuse or delay executing the securities sell order.Answer
  2. B
    The firm may place a temporary hold on both the execution of the stock sell order and the outgoing wire transfer until an internal compliance review is finalized.
  3. C
    The firm is required to freeze all account activity, prohibiting both transactions and disbursements, for an automatic mandatory period of 30 business days.
  4. D
    The firm may delay executing the stock sell order only if it receives explicit written permission to halt trading from the customer's designated trusted contact person.

Answer

The firm may place a temporary hold on the outgoing wire disbursement of funds, but FINRA Rule 2165 does not provide authority to refuse or delay executing the securities sell order.
Under FINRA Rule 2165, member firms that reasonably suspect financial exploitation of a Specified Adult (aged 65+ or adults with impairments) are permitted to place a temporary hold on disbursements of funds or securities from an account. However, this safe harbor rule applies strictly to disbursements (transferring assets out of the firm) and does NOT grant member firms the authority to place a hold on securities transactions or trade executions, such as a customer's order to sell stock.

Step-by-Step Solution

1
Identify the applicable regulatory rule for protecting senior investors from financial exploitation.
FINRA Rule 2165 (Financial Exploitation of Specified Adults) applies to natural persons aged 65 and older or individuals aged 18 and older with mental or physical impairments.
The customer is 67 years old, qualifying them as a Specified Adult under the rule.
2
Determine the exact scope of permissible holds under FINRA Rule 2165.
The rule explicitly permits member firms to place a temporary hold on the *disbursement* of funds or securities out of an account when financial exploitation is reasonably suspected.
The rule creates a safe harbor specifically for halting disbursements, not for stopping trade executions.
3
Distinguish between fund/security disbursements and trade executions.
The sell order for $50,000 of stock is a securities trade execution, whereas the outgoing wire transfer is a fund disbursement. Therefore, the firm may hold the wire transfer, but must execute the valid sell order.
Confusing trade execution blocks with disbursement holds is a common regulatory error; Rule 2165 does not grant authority to refuse trade execution.

Key Concept

FINRA Rule 2165 Scope of Temporary Disbursement Holds
Estimated Time:1m 45s
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Topics

Financial Exploitation of Senior Investors and Vulnerable Adults