Temporary Holds for Financial Exploitation of Specified Adults

This rule gives a firm a narrow, permissive tool to slow down a suspected theft. Every deadline in it stacks on the one before it, which is exactly where students lose points.

Who Does This Rule Protect, and What Counts as Financial Exploitation?

• Specified adult: a natural person age 65 or older, or a natural person age 18 or older whom the firm reasonably believes has a mental or physical impairment that leaves the person unable to protect their own interests.
• A firm's reasonable belief that a person age 18 or older has such an impairment may rest on the facts and circumstances it has observed in its own business relationship with that person.
• Account: any account of the firm for which a specified adult has authority to transact business.
• Trusted contact person: the person a firm may contact about a specified adult's account, already introduced in the trusted-contact-person lesson earlier in this course, under the customer account information rule.
• Financial exploitation: the wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult's funds or securities, or an act or omission, including one made through a power of attorney, a guardianship, or any other authority over that adult, to obtain control of the specified adult's money, assets, or property through deception, intimidation, or undue influence, or to convert that money, assets, or property.

When May a Firm Place a Temporary Hold?

• A firm may (the rule does not require it) place a temporary hold on a disbursement of funds or securities, or on a transaction in securities, in a specified adult's account, if all of the following are met:
  • The firm reasonably believes financial exploitation has occurred, is occurring, has been attempted, or will be attempted.
  • Not later than 2 business days after first placing the hold, the firm notifies all parties authorized to transact on the account and the trusted contact person, orally or in writing, of the hold and the reason for it, unless a party is unavailable or is itself reasonably believed to be involved.
  • The firm immediately begins an internal review of the facts and circumstances behind the hold.

What Does the Rule Protect the Firm From?

• The rule gives the firm and its associated persons a safe harbor. A firm that uses this discretion within the rule's requirements does not violate three standards it would otherwise have to answer to:
  • the just-and-equitable-principles-of-trade standard;
  • the prohibition on making improper use of a customer's securities or funds, covered in the supervisory-approvals unit earlier in this course;
  • the customer account transfer rule.
• That safe harbor is why the rule can be written as a permission. Without it, freezing a customer's own money on suspicion alone would conflict with the improper-use prohibition, which carries no exception of its own.

Exam Tip: Gotchas

• Notification runs on its own 2-business-day clock, separate from the hold periods below, and it must reach both the authorized parties on the account and the trusted contact person, unless either is unavailable or itself suspected.

How Do the Hold Periods Stack?

The later numbers are additions to the earlier period, not replacements for it.

• A state regulator, agency, or court of competent jurisdiction may terminate or extend any of these periods at any time, independent of the chain above.

Memory Aid: 2 to notify, 15 to hold, plus 10 more with a supporting review, plus 30 more with a report to a regulator, agency, or court (up to 55 business days total).

Exam Tip: Gotchas

• The three hold periods stack on different conditions. The initial 15 business days needs only the firm's reasonable belief. The next 10 business days needs a supporting internal review. The final 30 business days needs both a supporting review and an outside report, not an internal finding alone.

What Must a Firm Do to Rely on This Rule?

• The firm must maintain written supervisory procedures reasonably designed to achieve compliance. These are in addition to the firm's general supervisory and recordkeeping duties, not a replacement for them.
• Those procedures must cover, among other things, identifying, escalating, and reporting matters involving financial exploitation of specified adults. The rule names those three as a floor, not as the whole list.
• The firm must name, by title, who is authorized to place, terminate, or extend a hold. That person must be an associated person serving in a supervisory, compliance, or legal capacity.
• The firm must develop and document training policies or programs reasonably designed to ensure associated persons comply with the rule.
• The firm must retain records of:
  • the disbursement or transaction request behind the hold;
  • the reasonable-belief finding;
  • the name and title of the authorizing associated person;
  • the notifications given;
  • the internal review;
  • the reason and support for any extension, including any communications with or by a state regulator, an agency of competent jurisdiction, or a court of competent jurisdiction.
• Those records must be readily available to FINRA on request.

What Should You Check on Exam Day?

• Add the day counts in order rather than picking one in isolation: 15, then 25 with a review, then 55 with a review plus an outside report.
• Keep the 2-business-day notification clock separate from the hold-period chain; it starts from the same trigger but runs on its own.
• Confirm which condition unlocks which extension: a review alone unlocks the first, a review plus an outside report unlocks the second.
• Remember the rule is permissive (the firm "may" place a hold), not a mandatory duty triggered by suspicion alone.
• Connect the permission to the safe harbor: staying inside the rule's requirements is what protects the firm from the improper-use prohibition and the other two standards.