In an effort to combat the growing problem of fraud, and particularly the financial exploitation of seniors, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) is proposing a series of rule changes.
The U.S. self-regulatory organization (SRO) launched a consultation on a set of proposed amendments to its rules that aim to make it easier for brokerage firms to protect their clients.
In particular, FINRA is proposing to introduce a new rule that would create a “speed bump” for instances of suspected fraud, to give firms an opportunity to disrupt these kinds of schemes.
The SRO is proposing to create a new safe harbour that would allow firms to impose a temporary delay of up to five business days on disbursements or transactions “when there is a reasonable belief of fraud.”
That delay would give the firm added time to alert clients to suspected fraud.
The proposed rule “is designed to prevent customer losses by giving member firms a brief intervention window (or ‘speed bump’) to facilitate outreach by the firm to the customer (away from perpetrator influence), information gathering, conversation and provision of relevant educational resources about fraud schemes,” the SRO said in a notice outlining the proposal.
“The goal is to persuade the customer to recognize the attempted fraud and not to proceed with the transaction or disbursement,” it said.
The regulator is also proposing to extend the maximum temporary hold period under an existing safe-harbour provision that allows firms to put holds on transactions involving senior investors, or investors with cognitive capacity issues, in cases of suspected financial exploitation — the proposal would expand the maximum hold period in these cases from 55 days to 145 days, subject to certain safeguards.
“Given the complexity of modern fraud schemes and the time required for effective investigation and intervention, FINRA believes that extending the permissible temporary hold period would provide member firms with additional time to work with customers, trusted contacts and appropriate authorities to prevent or mitigate harm,” it said in a notice.
And, it’s proposing a measure that aims to increase the use of “trusted contacts” in the industry by giving firms additional flexibility to have clients name an emergency contact that can be used across all of the client’s accounts at the firm.
“While the trusted contact framework has proven valuable, greater rates of adoption would bring significantly more value to investor protection,” FINRA said, adding that the changes are designed to increase the usage of trusted contacts.
The proposals are out for comment until March 9.