October 13, 2015 / 8:46 PM / 4 years ago

FINRA to propose investment rules to protect elderly

NEW YORK (Reuters) - A U.S. securities regulator, aiming to protect elderly clients from scams and their own diminished mental capacity, will propose rules requiring brokers to identify - when an account is opened - a “trusted” person who can make financial decisions if the client’s judgment becomes impaired.

A sign for the Financial Industry Regulatory Authority (FINRA) is seen outside the offices in New York's financial district July 22, 2015. REUTERS/Brendan McDermid

The rules also will allow firms to freeze money transfers from accounts if they suspect fraud or odd activity.

The Financial Regulatory Authority will issue the proposals for comment this week or early next week, Ann-Marie Mason, counsel for litigation and policy of FINRA’s regulatory operations department, told a securities industry meeting on Tuesday.

Securities fraud aimed at the elderly is proliferating as people live longer and 10,000 baby boomers daily reach retirement age. One of every four complaints received by state regulators involves senior citizens, according to the North American Securities Administrators Association, or NASAA.

“The financial exploitation of seniors is what drunk driving was 20 years ago,” Alabama Securities Director Joseph Borg said at the conference, noting that no one now questions the once-controversial prosecution of drunk drivers.

NASAA last month proposed model state legislation outlining steps brokers and financial advisers should take if elder-fraud or incapacity is suspected.

The brokerage industry worries that such efforts could expose firms and advisers to privacy law violations and lawsuits for failing to freeze accounts in a timely manner - or moving too precipitously to do so when they suspect problems. Asking for backup controls when an account is opened also could irritate prospects and lead to lost business.

FINRA’s proposal to obtain names of trusted backups at account opening would require only that brokerage firms make “reasonable attempts” to get such names, Mason said. NASAA’s proposed legislation would give firms qualified immunity from breaking privacy laws, according to Borg.

Many seniors resist naming a backup or even reporting fraud incidents out of fear that younger family members will send them to a nursing home, Borg noted.

The FINRA proposal would freeze suspicious transfers for up to 15 days, while the NASAA proposal is for a 10-day freeze. Both would permit extensions if necessary and require reporting suspicious activity to regulators and, in the case of NASAA, to state service agencies.

Brokers or sales supervisors who try to prevent a client from moving an account by citing erratic client behavior would likely be committing fraud themselves, Borg said.

Reporting by Jed Horowitz; Editing by Dan Grebler

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