Several proposed new laws and regulations would require investment firms and advisors to report on, and prevent, the abuse of seniors.

The proposals, designed to address a growing number of financial-exploitation cases, would make it easier for the industry to report abuse and delay disbursement of funds in such cases.

State eldercare officials want more cooperation from financial firms in identifying victims and their assets. At the same time, financial institutions worry about violating privacy provisions in reporting abuse and hesitate to stop disbursements without court-ordered account freezes.

“There’s a risk of being sued by the account holder … particularly if [a firm’s] suspicions about abuse don’t pan out,” said Judith Shaw, Maine securities administrator and president of the North American Securities Administrators Association (NASAA).

A model state law, developed by NASAA, would allow a 10-day hold on disbursements when firms and individual advisors reasonably believe financial exploitation of an investor 60 years of age or older is taking place. 

Additionally, government agencies would gain broader access to firms’ records in such cases.

Even when they report cases, many financial institutions currently will not provide financial records to protective-service authorities, said Kathleen Quinn, executive director of the National Adult Protective Association, which supports the model law.

“They say it’s because of federal privacy laws,” Quinn said.

Importantly, the model act would also require reporting by advisors and firms to authorities when they see cases of suspected abuse—an idea the securities industry opposes.

Comments on the state law proposal closed last month.

In a related action, Finra last month asked for comment on a proposed new rule that would permit supervisors and compliance people to put temporary 15-day holds on disbursements from accounts owned by people age 65 and older (or otherwise impaired) when financial exploitation is suspected.

Comments on the Finra proposal, Regulatory Notice 15-37, are due November 30.

The Finra plan would allow “enough time to do an investigation, get into court, and really protect” the investor, said Wendy Cappelletto, supervising attorney in the office of the public guardian for Cook County, Ill.

On the Congressional front, senators Susan Collins (R-Maine) and Claire McCaskill (D-Mo.), introduced a bill in October that would provide immunity from federal privacy violations for financial institutions and advisors who report suspected abuse to regulators or adult protective services agencies.

Disagreements Emerge On Details  

Although the industry and regulators agree on the need to protect the swelling number of vulnerable seniors, they disagree on some of the details in the proposals.

Under the state model law, for example, a firm or advisor would be required to notify state regulators and adult protective services departments of any suspected abuse.

“Getting that into the hands of someone who can do something about it is important,” NASAA's Shaw said.

The Securities Industry and Financial Markets Association (SIFMA), which has been working with a number of states individually in combating financial exploitation, does not like the idea of mandatory reporting. Neither does the Financial Services Institute.

In many states, adult protective services agencies don’t have the resources to handle the thousands of reports that would be generated with mandated reporting, SIFMA  said in a comment letter to NASAA. The trade group estimated that up to half of all suspected cases turn out to be false positives.

State protective-services agencies, on the other hand, support mandatory reporting.

In states where reporting elder abuse is mandatory, usually by banks, “that’s really helped a lot … because [firms] have so much information” about assets that may need protecting, Quinn said.

SIFMA also wants state regulators to drop a proposed requirement to have individual advisors report abuse. The trade group wants that duty left up to firms.

A requirement on individuals would duplicate reporting and force registered reps and investment advisor representatives to circumvent reporting procedures at their firms, SIFMA says.

The trade group also wants more protections beyond the state-proposed 10-day hold period, absent a court order to freeze assets.

State elder authorities say they understand those liability concerns, but feel the industry may be overly fearful.

“In the 17 years I’ve been in this role, I’ve never seen a bank or financial institution sued for freezing [assets] or reporting” abuse, said Cappelletto of the Cook County public guardian’s office.

“But I have seen them sued for not taking action,” she said. “When you’re a deep pocket, and you allow money to go out [to an exploiter], that’s where they get in trouble.”

Despite some differences over the details, all the players support state and federal efforts to make it easier to report and stop exploitation.

SIFMA is encouraging policymakers to harmonize rules as much as possible and develop a single portal to handle reporting to the numerous local protective agencies.

“I think there’s a high likelihood we can get something integrated that will work well to protect senior clients,” said Marin Gibson, an associate general counsel at SIFMA.