How Long Does the FINRA Pause Rule Allow Firms to Delay Disbursement?

Financial exploitation of vulnerable individuals presents a significant challenge, prompting regulatory bodies to implement safeguards. The FINRA Temporary Hold Rule (FINRA Rule 2165) allows financial firms to place a temporary hold on disbursements of funds or securities from the accounts of specified adults. This protective measure is initiated when there is a reasonable belief of financial exploitation, providing firms time to investigate and intervene when a client’s assets may be at risk. This rule aims to protect vulnerable individuals from potential financial harm by allowing firms to pause suspicious transactions.

Conditions for Initiating a Disbursement Hold

A financial firm can initiate a temporary hold on a disbursement of funds or securities when there is a reasonable belief that financial exploitation of a specified adult has occurred, is occurring, has been attempted, or will be attempted. This protective measure is not automatically applied but requires specific conditions to be met by the firm before action is taken.

A “specified adult” is defined as an individual who is 65 years of age or older. This definition also includes any individual who is 18 years of age or older and has a mental or physical impairment that renders them unable to protect their own interests. Firms must assess whether a client falls within these categories, often by reviewing client records, observing interactions, and considering facts and circumstances in their business relationship. This assessment helps identify clients who may be particularly vulnerable to financial abuse.

“Financial exploitation” encompasses a broad range of deceptive or wrongful acts. It includes the wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult’s funds or securities. Furthermore, it covers any act or omission by a person, including through the use of a power of attorney or guardianship, to obtain control over the specified adult’s money, assets, or property through deception, intimidation, or undue influence. This comprehensive definition provides a framework for identifying suspicious activities.

A firm’s decision to place a hold must stem from a “reasonable belief” of such exploitation. This belief is typically formed based on observable indicators or “red flags” that signal potential abuse. Examples might include unusual or unexplained withdrawals, sudden changes in beneficiaries, unexplained transfers to unknown individuals, or signs of coercion when the client is discussing their finances. Firms often rely on internal policies and procedures to guide their employees in identifying and documenting these suspicious activities.

These internal guidelines help staff recognize patterns or specific instances that warrant further investigation. The firm’s policies also dictate the process for escalating concerns to appropriate personnel who are trained to evaluate the evidence. This structured approach helps ensure that decisions to place a hold are made consistently and based on objective criteria, rather than subjective judgment. The goal is to act proactively when there is credible suspicion, safeguarding the client’s assets.

Duration of the Temporary Hold

When a firm establishes a reasonable belief of financial exploitation, it may place a temporary hold on the disbursement of funds or securities for a defined period. Initially, this hold can remain in effect for up to 15 business days from the date the firm first initiates it. This initial period allows the firm to conduct an internal review and take necessary steps to address the suspected exploitation, such as contacting the specified adult or their trusted contact.

The temporary hold applies only to the specific disbursement in question and does not freeze the entire account. For example, if a suspicious withdrawal request is made, only that specific transaction would be delayed, while other legitimate transactions not related to the suspected exploitation could proceed. This targeted approach aims to minimize disruption to the specified adult’s financial affairs while addressing the immediate concern.

Under certain circumstances, the firm may extend the duration of the temporary hold beyond the initial 15 business days. If the firm’s internal review supports the reasonable belief of exploitation, the hold may be extended for an additional 10 business days, bringing the total hold period to 25 business days. A further extension of 30 business days is permissible if the firm has reported the matter to a state regulator, agency, or a court of competent jurisdiction, potentially lasting for a maximum of 55 business days from its initial placement. A court order can also supersede these standard regulatory time limits, allowing the firm to comply with a legal directive to protect assets.

Firm Responsibilities During a Hold

Once a temporary hold has been placed on a disbursement, the financial firm assumes several important responsibilities to manage the situation ethically and effectively. The firm must immediately initiate an internal review of the facts and circumstances that led to the reasonable belief of financial exploitation. This review involves gathering all relevant information, including transaction history, client communications, and any other evidence that supports or refutes the initial suspicion, to build a comprehensive understanding of the situation.

A crucial responsibility is to provide timely notification of the hold and the reason for it to all parties authorized to transact business on the account. This notification must include the specified adult themselves and any designated trusted contact person, if one has been provided by the client. This communication is typically required within two business days of the hold’s initiation. The notification helps ensure transparency and allows affected parties to understand the situation, providing them with an opportunity to respond or provide clarification.

The firm’s communication should explain that a temporary hold has been placed due to concerns about potential financial exploitation, without disclosing specific details that could compromise an investigation. While the rule does not mandate reporting to external agencies in all cases, firms are generally permitted or required to report suspected financial exploitation to a state protective agency or law enforcement, depending on state laws. This external reporting can be a critical step in involving authorities who can provide additional protection and resources, potentially leading to a more formal investigation or intervention.

Throughout the duration of the hold, the firm maintains an ongoing duty to monitor the situation and continue to assess their reasonable belief of financial exploitation. This involves staying updated on any new information, following up on their internal review, and communicating with relevant external agencies if a report was made. The continuous assessment ensures that the hold remains justified and is not unnecessarily prolonged, balancing client protection with their access to funds.

Resolution of the Hold

The temporary hold on a disbursement will conclude under specific conditions, leading either to the release of funds or continued action based on external directives. One common resolution occurs when the specified time period for the hold expires, which is typically 15 business days, unless it has been properly extended. If no further action is taken by regulatory agencies or courts, the firm must then release the held funds, ensuring the client’s access to their assets is restored promptly.

Alternatively, the firm must disburse the funds if it no longer reasonably believes that financial exploitation has occurred or will occur. This decision can result from the internal review process, where the firm concludes that the initial suspicion was unfounded or has been adequately addressed. The firm’s continuous assessment during the hold period guides this determination, ensuring that funds are not held indefinitely without justification and are released once concerns are resolved.

The resolution may also involve external entities, particularly if a state protective agency or law enforcement has become involved. If such an agency concludes its investigation and determines that no exploitation has occurred, or advises the firm to release the funds, the firm would proceed with the disbursement. This collaboration with external authorities helps validate the firm’s initial concerns and ensures a comprehensive approach to client protection, leveraging specialized expertise.

In cases where a court of competent jurisdiction issues an order related to the funds, such as an order to freeze assets, that order takes precedence. The firm would then follow the court’s directive, which could result in the funds being held for a period longer than the rule’s standard limits or disbursed according to the court’s instructions. This legal intervention provides a definitive resolution that supersedes the firm’s internal decision-making process regarding the temporary hold, ensuring compliance with judicial directives.