Reporting Senior Financial Exploitation


GUIDLINES

  • Where There is a Reasonable Belief (After Researching and Investigating a Situation) by the Firm that a Client has been Exploited Financially, or that Exploitation is imminent, a Firm Should Report the Situation to the Appropriate State Agency or Agencies, Regardless of Whether Reporting is Mandated by Law.

  • Understand Reporting Obligations and Triggers, Whether Mandatory or Voluntary; and to Whom the Obligation Runs, the Firm or the Individual.

  • Develop Clear, Detailed Escalation Procedures, Establishing Direct Lines of Communication to Ensure Proper Reporting.

  • Mandate the Use of Specified Internal Reporting Forms to Ensure Accurate and Consistent Reporting.


Together with a program designed to assist firm employees to identify at-risk clients, firms also should clearly set forth the steps that must be taken in instances where financial exploitation of the client is suspected.

Mandatory vs. Voluntary Reporting                    

Nearly all states have existing state laws contain mandatory reporting requirements when there is a suspicion of elder abuse, whether physical, mental, or financial. Some of these laws specifically mandate reporting by broker-dealers and/or investment advisers.[7] Others, while not explicitly designed for broker-dealers or investment advisers, apply broadly to financial institutions, which may include broker-dealers and investment advisers.[8] Other state reporting laws could apply to broker dealers and/or investment advisers (or their employees) because the reporting requirement applies to all persons.[9] The NASAA Model Act contains a mandatory obligation to report potential financial exploitation when there is a reasonable belief that such exploitation may be occurring. Other states have adopted a voluntary reporting scheme under which broker-dealers and/or investment advisers may report their suspicions regarding the potential financial exploitation of their senior clients, but are not required to report.[10]

Broker-dealers and investment advisers, however, should adopt as a firm policy to report suspected financial exploitation whether or not the firm has a legal obligation to report. Reporting suspected financial exploitation to the appropriate law enforcement or regulatory or social services agency is a critical step necessary to protect vulnerable investors that firms should voluntarily take.

 Reporting Mechanics

The landscape of reporting obligations varies not only as to the mandatory or voluntary nature of the reporting requirement, but also the scope of the permitted or required reporting by individuals or entities. Firms should remain particularly mindful that they, or their employees, may already be subject to certain reporting requirements.[11] It is important for the firm to understand its own, as well as its employees’ reporting obligations, and to develop policies, procedures, and training programs accordingly.

A firm’s policies and procedures also should promote internal communication and coordination regarding the reporting of financial exploitation. This is especially important for larger, more complex firms in which one division may not be aware that suspicious activity has been reported in a customer’s account being managed in another division.[12] Such policies and procedures, of course, will depend on the size and nature of each individual broker-dealer or investment adviser and may include the creation of a specified office or division to monitor the activity in designated accounts.Policies and procedures should include detailed criteria or red flags that would trigger broker-dealer or investment adviser reporting in compliance with a jurisdiction’s reporting triggers and standards. For example, under the NASAA Model Act, a firm’s reporting policies and procedures should outline the facts and circumstances that could result in the development of a reasonable belief that financial exploitation has occurred, is occurring, or may occur. The presence or observation of the red flags identified could form the basis for this belief, and might serve as a good starting point for such policies. Further, firms should develop clear, detailed escalation procedures, establishing direct lines of communication to ensure proper reporting. Training on these escalation procedures is critical to ensure that employees understand the steps necessary to report a potentially urgent situation involving a senior investor.

Firms’ policies and procedures also should mandate the use of specified internal reporting forms to ensure that each report contains pre-determined categories of information. Each firm should develop its own forms, both for internal information gathering and for external reporting, that contain critical information including:

  • the name of the client;
  • the relevant dates;
  • a description of the events that led to the report;
  • a description of the steps the firm has taken or expects to take in response to the event; and
  • any relevant documentation related to the potential financial exploitation to ensure that the internal stakeholders and any outside agency receiving the report has all of the necessary information to evaluate the report.

These kinds of comprehensive reports will help alleviate inconsistent reporting, which, in the course of developing this Guide, was identified by APS agencies’ as a major concern with financial firm reporting.

Leveraging Existing Policies and Procedures

In developing these policies and procedures, broker-dealers and investment advisers should be able to draw from the policies and procedures already in place related to monitoring their client’s accounts. For example, firms should be able to leverage and modify their existing compliance framework for detection and prevention of excessive, unsuitable, or unusual trading, for monitoring client correspondence, or for other reporting obligations like Suspicious Activity Reports (“SARs”). Firms should also review other areas of their existing policies and procedures for opportunities to identify and detect areas that may be adapted and modified to facilitate the identification of diminished capacity and the reporting of financial exploitation.


NOTES

[7] See Mississippi. Miss. Code Ann. §43-47-7(1)(a).

[8] See, e.g., Arkansas, Ark. Code Ann. § 12-12-1708(a)(1); Colorado, Colo. Rev. Stat. §18-6.5-108(1)(a)-(1)(b); District of Columbia, D.C. Code § 7-1903(a)(1); Kansas, Kan. Stat. Ann. § 39-1402(a).

[9] See, e.g., Oklahoma, Okla. Stat. Ann. tit. 43A §10-104v1; Rhode Island, R.I. Gen. Laws Ann. § 42-66-8; Florida, Fla. Stat. §415.1034(1)(a).

[10] See, e.g., Missouri, Mo. Stat. Ann. § 409.610; Iowa, Iowa Code Ann. § 235B.3(4).

[11] NASAA recognizes that under some elder abuse reporting statutes, as under the NASAA Model Act, the duty or ability to report falls on the individual, while in others the duty or ability to report runs to the firm.

[12] For example, the banking division may not be aware that the securities division is monitoring a particular customer’s account.

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