United States: NASAA Adopts Model Act On The Prevention Of Financial Exploitation Of Vulnerable Adults

On January 22, 2016, the North American Securities Administrators Association ("NASAA") adopted a model act, entitled "An Act to Protect Vulnerable Adults from Financial Exploitation." This act seeks to facilitate coordination among securities regulators, broker-dealers, and adult protective services agencies in dealing with the financial exploitation of seniors and other vulnerable adults. The model act reflects the collective views of the NASAA membership, which consists of 67 state, provincial, and territorial securities administrators from the 50 states, D.C., Puerto Rico, the U.S. Virgin Islands, Canada and Mexico; however, it has no legal authority and is only meant to serve as a guidepost to individual jurisdictions. The model act may be adopted by state legislatures or regulators (with or without modifications) and has both permissive and mandatory components.

The Basics of the Model Act

If adopted by a state legislature, the model act would require a state-registered broker-dealer or a "qualified individual"1 with a reasonable belief that "financial exploitation"2 of an "eligible adult"3 is occurring or may occur to notify adult protective services and the commissioner of securities in that jurisdiction (collectively, the "Agencies").4 Optionally, the broker-dealer or other qualified individual could also notify any contact person previously designated by the eligible adult (unless the person is suspected of foul play). Additionally, if a disbursement is requested from the account, the broker-dealer, after an initial review of the facts, may place a temporary hold on disbursements from the account.

Under the model act, when pursuing a temporary hold, the broker-dealer must:

  • notify, within two business days of the requested disbursement, all authorized parties on the account of the reason for the hold;
  • notify, within two business days of the requested disbursement, the Agencies of the reason for the hold; and
  • continue its internal review and report its findings to the Agencies within seven business days of the requested disbursement.

As contemplated in the model act, the hold will expire upon the earlier of (1) a determination by the broker-dealer that the disbursement will not result in financial exploitation, or (2) 15 business days after the date on which the hold was placed on the account, unless either of the Agencies requests an extension. In the event of an extension, the hold will expire (1) 25 business days after the date on which the hold was placed on the account, or (2) may be terminated on an earlier date by either of the Agencies or a court of competent jurisdiction. Further, a court of competent jurisdiction would be able to enter an order to extend the hold or order protective relief based on the petition of either of the Agencies, the broker-dealer initiating the delay or other interested party.

Under the model act, broker-dealers or other qualified individuals acting in good-faith and exercising reasonable care would be immunized from administrative and civil liability that may arise from disclosure of information to the government or to third parties, or that may arise from a delaying a disbursement.

FINRA Proposed Rules Closely Align with NASAA Model Act

NASAA isn't the only one with an eye to preventing fraud and abuse of senior investors. Prior to the release of this model act, the Financial Industry Regulatory Authority ("FINRA") launched its Securities Helpline for Seniors", which serves as a resource for seniors making investment decisions and as a means for detecting fraud (see  http://www.bdiaregulator.com/2016/01/finras-securities-helpline-for-seniors-provides-guidance-to-broker-dealers/ for more information). FINRA also proposed two rules, Rule 2165 and Rule 4512, to help combat financial exploitation of vulnerable adults (see  http://www.bdiaregulator.com/2015/10/finra-proposes-rules-to-help-avoid-financial-exploitation-of-seniors/ for more information). The model act and the proposed FINRA rules have significant overlap, but also some notable differences and areas of emphasis.

First, the model act and the proposed FINRA rules apply to the same eligible persons and qualified individuals and use the same definition for financial exploitation. Second, the proposed FINRA rules propose a similar procedure for placing a hold on disbursements from a customer's account. Lastly, the proposed FINRA rules also contemplate the benefit of a safe harbor for broker-dealers exercising reasonable judgment in choosing to disclose information or place a hold on a customer's account.

Perhaps the more important question is how the two rules differ from one another. The model act places an emphasis on reporting to, and oversight by, Agencies. In contrast, the proposed FINRA rules do not require notifying any outside or government entity of the suspected abuse. Rather, the responsibility to investigate and resolve the situation is left to the broker-dealer, which must establish policies and procedures for identifying, handling and escalating potential problems. For example, the proposed FINRA rules would require broker-dealers to use reasonable efforts to obtain the name of a trusted contact person upon opening an account, or when updating a preexisting account.5 FINRA would also require that the trusted contact person be notified when a hold has been placed on the account (unless the person is suspected of foul play), in addition to notifying the authorized persons on the account. Like the model act, FINRA also proposed that any hold would expire within 15 business days from the date of the hold, but may be extended for another 15 days by a court of competent jurisdiction.

Though both the proposed FINRA rules and the model act may prove to be effective on their own, it is foreseeable that they could work together to provide a more robust approach to combatting abuse of senior investors and other vulnerable adults. By the same token, it is also possible that inconsistencies or conflicts between the two could create a more complex regulatory regime fraught with opportunities for inadvertent noncompliance.

Footnotes

1 "Qualified individual" means any agent, investment adviser representative or person who serves in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser.

2 "Financial exploitation" means: (a) the wrongful or unauthorized taking, withholding, appropriation, or use of money, assets or property of an eligible adult; or (b) any act or omission taken by a person, including through the use of a power of attorney, guardianship, or conservatorship of an eligible adult, to: (i) obtain control, through deception, intimidation or undue influence, over the eligible adult's money, assets or property to deprive the eligible adult of the ownership, use, benefit or possession of his or her money, assets or property; or (ii) convert money, assets or property of the eligible adult to deprive such eligible adult of the ownership, use, benefit or possession of his or her money, assets or property.

3 "Eligible adult" means (a) a person sixty-five years of age or older; or (b) a person with a severe mental impairment (or as otherwise defined in the relevant Adult Protective Services Statute).

4 The titles "adult protective services" and "commissioner of securities" may vary by jurisdiction.

5 Though the model act provides that a broker-dealer may reach out to a person previously designated by the account holder, it is silent on the matter of how a broker-dealer should go about obtaining this information.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions