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States Enact Good Samaritan Broker Laws

On January 22, 2016, the members of the North American Securities Administrators Association (NASAA) released the Senior Model Act.  It was developed and approved to serve as a model statute for states to adopt to target financial exploitation of seniors and to shield from liability brokers and brokerage firms who acted to assist those seniors. The Senior Model Act comports with a multitude of legislation and regulatory protection for seniors. Broadly stated, the Senior Model Act proposes language for legislation that would require “qualified individuals” such as broker-dealers and investment advisers, and those who work in a supervisory or legal capacity for them, to report any suspicions of financial elder abuse. The Senior Model Act proposes the protection of “eligible adults,” defined as those over the age of 65.

Key Provisions of the Senior Model Act:

  • Mandatory Reporting. Qualified individuals who reasonably believe a senior has been or is targeted to be financially exploited must report this promptly to their state’s security regulator and state’s adult protective services.
  • Notification to Third Parties. A qualified individual may only report this to a third party if the senior has designated one. A qualified individual cannot report it to a person who is suspected of committing the financial abuse.
  • Delayed Disbursements. Broker-dealers and investment advisers can delay disbursements from the senior’s account for up to 15 days. To do so, they must (a) notify people authorized to transact business on the senior’s account, (b) notify the state securities regulator and adult protective services, and (c) undertake an internal review of the suspected exploitation. The disbursements may be further delayed by the qualified individual for an additional 10 business days or by court order.
  • Immunity. Qualified individuals will have immunity from civil or administrative liability for actions taken pursuant to the Senior Model Act.
  • Providing Records. Broker-dealers and investment advisers would be required to comply with record requests from adult protective services or law enforcement when financial exploitation is suspected.

Twenty-eight states have passed laws that are substantially similar or identical to the Senior Model Act passed by the North American Securities Administrators Association. Click here for a state survey:

  • The effective date of the law in each state
  • Which key provisions the state has adopted
  • Any notable deviations or notes of interest.

Recent State Fiduciary Duty Developments

The Iowa Insurance Division has adopted the insurance producer portion of the rule for its proposed best interest standard for annuity sales, effective January 1, 2020. In response to comments, the Division elected to postpone the rule’s application to securities professionals, indicating that it intends to publish new rulemaking for the securities industry later this summer.

See the updated state chart.

Recent State Fiduciary Duty Developments

The Iowa Insurance Division has proposed a “best interest” standard for the sale of annuities in that state. The press release for the proposal indicates that it “follows efforts by the National Association of Insurance Commissioners (NAIC) to develop a model Suitability in Annuity Transactions Model Regulation” and stated that the proposal is designed to be “harmonized“ with the SEC’s Regulation Best Interest. The comment period expires on April 28, 2020, though it seems this could be extended in light of the coronavirus crisis.

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SEC Examination Guidelines and FAQs on Form CRS

The SEC has issued guidance addressing the Form CRS. The first is a Risk Alert from the Office of Compliance Inspections and Examinations (OCIE) indicating that OCIE will be looking for good faith compliance when it conducts examinations after the June 30, 2020 Form CRS compliance date. The second includes additional FAQs providing clarification on delivery and filing requirements along with several other topical areas. We discuss the examination guidance and the FAQs in more detail in an alert on our website for those looking for more in-depth analysis. Also, note that the CRS Risk Alert was issued concurrently with a similar Alert on Reg BI examinations in general, which is the subject of a separate post on this site.

As SEC Chairman Clayton previously indicated, the compliance date of Form CRS will not be extended, but the “initial” examinations will focus on whether firms made “a good faith effort to implement Form CRS.” While emphasizing that the Risk Alert is not intended to serve as an explanation of Form CRS requirements, OCIE explains that its initial examinations may include assessment of compliance with the following areas:

Continue reading “SEC Examination Guidelines and FAQs on Form CRS”

The Word Is Out on SEC Examinations for Reg BI Compliance – the OCIE Risk Alert

On April 7, 2020, the Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert providing guidance for the SEC’s post–June 30, 2020, examinations of firms’ compliance with Regulation Best Interest (Reg BI). This guidance is covered more fully in our Client Alert of April 13, 2020.

In an effort to present transparency in its prospective examination for Reg BI compliance, OCIE’s Risk Alert includes a three-page Appendix that provides an example of an OCIE Reg BI examination document and information request list. OCIE encourages firms to use the documents listed in the Appendix to assess their implementation plans for Reg BI. Firms should study this exemplar request list closely.

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Wait Just a Minute: FINRA Loosens the Screws on Proposed Expungement Restrictions

Brokers seeking to expunge customer complaints from their records can sleep a bit easier. Richard Berry, head of FINRA’s Office of Dispute Resolution (ODR), stated last week that FINRA intends to tweak some restrictions that it had previously proposed on brokers’ abilities to seek expungement of customer complaints.

Notably, in late 2017 FINRA proposed a number of changes to the expungement process, including:

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State Fiduciary Duty Developments: Massachusetts Moves Ahead with Fiduciary Standard

The Massachusetts Securities Division has issued an amended version of its proposed fiduciary standard for financial advisors. The original proposal was released in mid-June.

The amendment adds definition to the standard by including a detailed list of requirements as described in Faegre Drinker’s updated state law chart. The absence of this type of description has been a major criticism of other attempts at adopting a fiduciary standard for financial advisors.

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Further Protection for Good Samaritan Brokers: States and FINRA Continue the Push to Protect Senior Investors by Protecting Brokers Who Do the Right Thing

Following the passage of last year’s federal Senior Safe Act, several states moved to beef up protections for senior investors by permitting brokers to act without liability.
Continue reading “Further Protection for Good Samaritan Brokers: States and FINRA Continue the Push to Protect Senior Investors by Protecting Brokers Who Do the Right Thing”