Various States have recently adopted forms of senior financial abuse laws. Generally, these laws may provide certain affirmative duties upon financial and non-financial service providers to report suspected senior financial or other abuse to designated authorities. In addition, these laws may provide certain legal protections to these service providers when reporting suspected senior financial or other abuse. These laws vary by State as to whether they are applicable to investment advisers.

On a federal level there have been two recent developments relating to senior financial abuse. First, on May 24, 2018 President Trump signed into law legislation that limits several provisions of the Dodd-Frank Act. Included within this legislation are provisions titled “Immunity from Suit for Disclosure of Financial Exploitation of Senior Citizens.” This legislation provides covered financial institutions, such as investment advisers and broker-dealers and their personnel, with immunity from certain actions when reporting suspected exploitation of a senior citizen. Specifically, individuals of covered financial institutions who have received training as prescribed under the legislation will not be liable, including in any civil or administrative proceeding, for disclosing suspected exploitation of a senior citizen to a “covered agency” if the individual at the time of the disclosure:

• Served as a supervisor or in a compliance or legal function for, or in the case of a registered representative, investment adviser representative or insurance producer, was affiliated or associated with a covered financial institution; and
• Made the disclosure in good faith and with reasonable care.

A covered financial institution will not be liable, including in any civil or administrative proceeding, for a disclosure made by any of its individuals as described above if:

• The individual was employed by, or in the case of a registered representative, insurance producer or investment adviser representative, affiliated or associated with, the covered financial institution at the time of the disclosure; and
• Before the time of the disclosure, such individual received the training described above.

The training required under the legislation may be provided by the covered financial institution or a third party selected by the covered financial institution. The training generally is to be provided to supervisory, compliance, investment adviser representative and other personnel who may come into contact with a senior citizen as a regular part of their job duties, or otherwise may review and approve financial documents or transactions of a senior citizen in connection with providing financial services to a senior citizen. The training must:

• Be maintained by the covered financial institution and made available to a covered agency with examination authority over the financial institution, upon request;
• Instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally, and as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen;
• Discuss the need to protect the privacy and integrity of each individual of each customer; and
• Be appropriate to the job responsibilities of the individual attending the training.

The training must generally be provided as soon as reasonably practicable.  In addition, the legislation specifically provides that for any individual who begins employment after the date of the legislation, training is to be provided not later than 1 year after the date on which the person becomes an employee of the covered financial institution.

Covered financial institutions are required to maintain the following records related to the training:

• A record of each individual who;
  • Is employed by, or affiliated with, the covered financial institution in one of the capacities described above; and
  • Has completed the training, either as provided by that persons’ current covered financial institution employer or was completed prior to that person joining their current covered financial institution employer.

Finally, the legislation provides that it does not preempt or limit any provision of State law, except only to the extent that the legislation provides a greater level of protection against liability than is provided under State law.

Second, on May 30, 2018 the Investment Company Institute (“ICI”) submitted a request for no-action relief to the SEC Division of Investment Management relating to redemption requirements of Section 22(e) of the Investment Company Act of 1940 (the “Act”). Specifically, the ICI requested relief from the redemption requirements of Section 22(e) of the Act if the transfer agent, acting on behalf of a mutual fund, temporarily delays for more than seven days the disbursement of redemption proceeds from the mutual fund account of a Specified Adult held directly with the transfer agent based on the transfer agent’s reasonable belief that financial exploitation of the Specified Adult has occurred, is occurring, has been attempted, or will be attempted.  Mutual fund shareholder accounts that are held directly with the mutual fund are serviced by the fund’s transfer agent.  For purposes of the request for no-action relief, the terms “Specified Adult,” “account,” and “financial exploitation” generally have the meaning as defined in FINRA Rule 2165. In granting the requested relief on June 1, 2018, the Division of Investment Management, as per the request of the ICI, requires that each transfer agent comply with the conditions imposed on broker-dealers under FINRA Rule 2165.

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Resources

• Response of the Chief Counsel's Office: Division of Investment Management