FINRA Regulatory Notice 26-02

Summary

SIFMA provided comments to FINRA in response to its Regulatory Notice (“RN”) 26-02. SIFMA appreciates FINRA’s commitment to working with the industry to protect customers from fraud and financial exploitation. SIFMA supports the efforts of FINRA and provides some suggestions to further improve these proposals.

Excerpt

Rule 4512; Trusted Contact Amendments

We support the proposal from FINRA to allow member firms to use the term “emergency contact” as an alternative to “trusted contact person.” Such an option is likely to increase clients’ designation of trusted contacts as they will understand the term “emergency contact” more easily than “trusted contact.” Adding this option enables firms to assess the terminology that best works for their client base, as firms work diligently to increase the number of trusted contacts attached to accounts.

We support FINRA providing the flexibility for a customer to name a trusted or emergency contact for use across all the customer’s accounts at the member firm. For some of our member firms, it would be more effective to identify a trusted contact at the client level, because it is the client – not the account– that is being exploited. We also have member firms where, due to their business model, internal structures, and primary clientele, it would be more effective to set up trusted contacts at the account level. Therefore, we request that FINRA clarify that a firm can choose whether to provide clients the option to appoint a trusted contact at either the client or account level only, since requiring firms to adopt a hybrid approach on a client-by-client basis could impose significant technological and substantive challenges counter to this very positive change.

We Support Rule 2165’s Temporary Hold Amendments with Broader Contours

We support the proposed extension of Rule 2165’s maximum hold period from 55 business days to 145 business days.3 This additional time is necessary to investigate and correspond with, including but not limited to, adult protective services, law enforcement, and other agencies of competent jurisdiction. Given that this critical process can take longer, we support the ability for various parties to extend the hold, but request that the requirement to ask the appropriate parties for an extension be 45 instead of 30 days. Based on the collective experiences of our member firms that regularly work with these under-resourced agencies, more frequent outreach would be more disruptive for all parties involved.

We also support explicitly including federal authorities among the entities whose involvement may justify extending a temporary hold. While some firms may need to update internal coordination procedures to accommodate this enhancement, we believe this will improve protection for clients.

In addition, we support expanding the category of individuals authorized to place, extend, or terminate temporary holds to include trained specialists in senior-investor protection or fraud prevention, noting that these individuals often handle such matters in practice.

Finally, we support codifying FAQ guidance allowing firms to rely on informal requests from authorities when extending holds, provided the firm documents the request.