Credit unions and other financial institutions may soon be able to put temporary holds on accounts belonging to some members they suspect are being financially exploited, according to proposed new FINRA rules.
The rules would permit 15-day holds (and longer, in some cases) on accounts held by members who are either 65 and over or over 18, and whom an institution "reasonably believes" have mental or physical impairments that render them unable to protect their own interests. Many credit unions offer investment products through third-party brokerage agreements with FINRA-member firms, and the proposed rules would allow "qualified persons"— those at a firm who serve in supervisory, compliance or legal capacities reasonably related to a member's account — to place the holds.
FINRA would also require firms to make reasonable efforts to obtain the name and contact information for a trusted person who is not authorized to transact business on the account but may be contacted about the member's account. Firms may then inform trusted persons when a hold is placed on an account, according to the proposed rules.
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"I think the intentions of this are good, but then it puts more responsibility on the financial institution and credit unions and we already have so much responsibility with BSA [Bank Secrecy Act]," said PJ Shepherd, assistant vice president of member service at First U.S. Community Credit Union in Sacramento, Calif. The credit union, which weighed in with its own comment letter to FINRA, has $336 million in assets and about 25,000 members.
In a letter to FINRA, First U.S. Community CU VP of Operations Julie Ainsworth questioned the length of the hold.
"Our only real concern is, if the hold is only good for 15 days and then we have to release it, will it really do any good? It takes longer than that for a court order or for [Adult Protective Services] to get involved," she wrote.
The proposed rules don't create an obligation to place holds on accounts, and firms that do would have safe harbor against the repercussions of withholding funds, according to FINRA. But once a hold is in place, the firm would have to conduct an internal review and within two business days notify all parties authorized on the account about the hold and the reason for the hold. Firms would have to keep records of the notifications, according to the filing.
Though the proposed rules allow firms to request a 15 business day extension if their internal reviews support their suspicions of exploitation, Shepherd said starting out at 30 days would be better.
"I would say 30 days would be a lot easier, because once we give it to APS, it's really their job to determine what this is and to get the sheriff's department [involved]," she told CU Times.
One other concern, Shepherd said, is that sometimes the trusted person is actually the one exploiting the member. Contact with an immediate family member would be the next step in that case, according to FINRA.
FINRA staff will next either revise the proposal or file it with the SEC for notice and comment, according to a FINRA spokesperson.
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