Bates Research  |  01-31-18

New Rules, Federal and State Developments to Address Senior Investor Protections



With a week to go before broad FINRA rules intended to protect seniors from financial exploitation take effect, activity across the federal and state landscape shows no sign of slowing. FINRA released new FAQs in relation to the new rules. We also review reaction to the passage of the Elder Abuse Prevention and Prosecution Act, consider the passage of the Senior $AFE Act in the House this week, and highlight some important state-level developments.

FINRA Rules 2165 and 4512 Take Effect February 5th

The new rules provide a way for member firms to deal with situations where there is “a reasonable basis to believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted.” (See FINRA Notice 17-11). As Bates Research previously detailed, FINRA Rule 2165, permitting members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers, and FINRA Rule 4512, which requires members to make reasonable efforts to obtain the name and contact information for a trusted contact person for a customer’s account, are intended to reduce the incidence of elder financial exploitation.

FINRA members, of course, have been anticipating for the implementation of these rules for some time. In early January 2018, FINRA released additional FAQs in order to drill down on a number of additional compliance details. For example, FINRA advised on holding disbursements of funds or securities under Rule 2165 as distinct from transactions of securities (the latter is not allowed under the Rule). The FAQs also detailed permissible extensions of temporary holds – particularly as they may relate to state agency interactions. FINRA provided additional guidance on what members are allowed to disclose to a “trusted contact” about a customer’s account. Review of these new FAQs is highly recommended.

Elder Abuse Act: Elder Justice Coordinators to be installed

Since President Trump signed the Elder Abuse Prevention and Prosecution Act (“EAPPA”) on October 18, 2017 (see Bates Research blog here), the law has been garnering some praise. (For an unlikely source, see here.) The law increases prosecutorial resources for the Attorney General while enhancing penalties for financial fraud perpetrated against the elderly, provides greater consumer protections through the Federal Trade Commission, and improves data collection and coordination at the Department of Justice.

The most important institutional change may be the law’s requirement that the Department of Justice, Federal Trade Commission, and every federal judicial district must install elder justice coordinators and provide more resources for training to assist officials at all levels. The expectation is that these permanent hires will ensure a high level of focus as well as encourage prosecutors to coordinate investigations on enforcement. On January 3, 2018, Acting FTC Chair Maureen Ohlhausen designated Kathleen Benway, Chief of Staff of the Bureau of Consumer Protection, to be Elder Justice Coordinator.

Senior $AFE Act Gets A Second Life

It has been reported that in a voice vote on January 29, 2018, House legislators passed the Senior $AFE Act, a bill intended to protect investment advisers, brokers and other financial professionals who disclose instances of alleged elder abuse to authorities. Bates Group has been tracking this perennial bill, though early adoption in the House suggests improved prospects for passage this year. In a press release urging the Senate to act, the American Council of Life Insurers thanked authors Sens. Susan Collins (R-Maine) and Claire McCaskill (D-Mo.) and stated that the bill “encourages financial services firms to provide appropriate training to front-line employees and producers, while granting immunity to those that report suspected abuse to regulators and law enforcement authorities.” Senator Collins also praised the development. It is unclear when the Senate version of the bill will be reintroduced.

Notable State Developments

In a year-end review of state efforts to combat financial crime against seniors, the National Conference of State Legislatures (“NCSL”) reported that thirty-nine states and the District of Columbia “addressed financial exploitation of the elderly and vulnerable adults in the 2017 legislative session.” Twenty-four of those states enacted some form of legislation or adopted resolutions on the issue. (See here for specific state law references.) Some of the noted state legislative actions cited by NCSL follow elements of the NASAA Model Act. Oregon “authorized financial institutions to refuse certain financial transactions when the financial institution reasonably believes financial exploitation of a vulnerable person may have occurred, may have been attempted or is being attempted.” Others had unique elements. Vermont created a new private right of action for vulnerable adults who were the victims of financial exploitation, and required life insurers to notify a designated “secondary addressee” before terminating a policy of a resident of the state. According to the NCSL, Arkansas, Colorado, Indiana, Maryland, Mississippi, Montana, New Mexico, North Dakota, Oregon, Tennessee, Texas, and Vermont reportedly amended the state securities laws to provide additional protections for vulnerable adults from financial exploitation.


The impact of the exploitation remains relatively uncertain, though estimates range from $2.9 billion (2011) to $36 billion (2015). The problem is perceived to be widely under-reported. The implementation of new FINRA rules, a new federal law that increases protections and dedicates specialized resources, and a steady stream of federal and state legislative efforts will not diminish the potency of an issue that touches every corner of the country. Bates Group will keep bringing you the latest developments on this important topic.


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