On May 24, 2018, President Trump signed into law the Senior Safe Act, which is aimed at curbing elder financial abuse. The Senior Safe Act is the latest effort to protect senior investors, as both FINRA and the SEC included protecting senior investors among their 2018 priorities. This blog has previously covered, at length, the SEC and FINRA 2018 exam priorities. Elder protection was also one of the SEC’s 2017 priorities and has been a FINRA priority since 2016.
To help prevent elder financial abuse, the Senior Safe Act provides immunity to certain defined financial advisors and financial institutions who disclose “potential examples of financial exploitation of senior citizens.” Exploitation includes fraudulent or other improper acts that: (1) “uses the senior citizen’s resources for monetary or personal benefit or profit” or; (2) “results in depriving a senior citizen of rightful access to or use of benefits, resources, belongings or assets.”
Among others, broker-dealers, investment advisors and insurance providers will not be liable for any good faith disclosures of senior exploitation made in any civil or administrative hearing or to any financial regulators, so long as they receive certain training from their associated financial institution. Similarly, “covered financial institutions,” including broker-dealers, insurance agencies, and insurance companies, will not be liable for any disclosures made by its employees, so long as the financial institutions provide their employees with training.
Specifically, the financial institution must “instruct any individual . . . on how to identify and report the suspected exploitation of a senior citizen internally, and as appropriate to government official or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen.” The training must also “discuss the need to protect the privacy and respect of each individual customer of the covered financial institution.” The financial institution must provide its employees with the training “as soon as reasonably practicable.”
The Senior Safe Act follows closely on the heels of recently passed FINRA rules 2165 and 4512, effective February 5, 2018, which “put in place the first uniform, national standards to protect senior investors. Firms are now required [pursuant to Rule 4512] to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account.” In addition, [Rule 2165] permits FINRA member firms to place a temporary hold on a disbursement of funds or securities when there is a reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold.”
Like the Senior Safe Act, FINRA’s new rules advise that there has to be a weighing of disclosures and privacy. Specifically, the FAQ notes “that the member or an associated person is authorized to contact the trusted contact and disclose information about the customer’s account to address possible financial exploitation, to confirm the specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney, or as otherwise permitted by Rule 2165. A member’s decision to include additional categories of information in the written disclosure is beyond the scope of Rule 4512 and members should consider the requirements of Regulation S-P.” Like the Senior Safe Act, Rule 2165 – Supplementary Material 0.2 – also requires brokerage firms to train its employees to recognize when and what action is necessary to prevent financial exploitation of senior investors.
Therefore, FINRA recently provided a broker and brokerage firm a regulatory safe harbor in which they were permitted to prevent the transfer of funds and assets when they suspect elder abuse without incurring liability. In addition, they were permitted to seek out and advise a trusted individual when appropriate. Now, the Senior Safe Act provides them with a legal safe harbor when making such disclosures. While the Senior Safe Act is the latest effort to curb senior financial abuse, considering the various regulatory efforts to protect senior investors, it is unlikely the last.