NASAA Model Legislation or Regulation to Protect Vulnerable Adults from Financial Exploitation | Adopted January 22, 2016

 

Legislative Text & Updated Commentary
for the 2017 Legislative Session


Background

The Model Act originated as an initiative of NASAA’s Committee on Senior Issues and Diminished Capacity (“Seniors Committee” or “Committee”).[i]  The Seniors Committee, formed in 2014, is the latest in a series of initiatives from NASAA and its members to protect senior investors since the launch of the Senior Investor Resource Center in 2003 and the adoption of a model rule on the use of senior-specific certifications and professional designations in 2008.  The most effective way to address the protection of seniors and vulnerable adults is through a holistic approach, and the Seniors Committee is advised by an Advisory Council drawing from representatives from industry, academia, regulatory agencies and elder advocates.[ii]

On September 29, 2015, a draft of the proposed Model Act was released for a 30-day public comment period.[iii]  The Committee received and considered comments from various interested parties and considered a similar proposal contained in Regulatory Notice 15-37 issued by the Financial Industry Regulatory Authority (“FINRA”).[iv]  Furthermore, in light of federal legislation proposed in October 2015,[v] the Committee conducted further internal review in late 2015 and revised several elements of the Model Act.  On December 22, 2015, NASAA’s Board of Directors approved the Committee’s request to submit the proposed Model Act to the NASAA membership for consideration.  On January 22, 2016, NASAA members voted to approve the Model Act.

The NASAA Model Act applies to broker-dealers and investment advisers, including certain qualified individuals (broker-dealer agents, investment adviser representatives and persons serving in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser).  The provisions of the Model Act could be adopted by a jurisdiction statutorily as part of a jurisdiction’s existing securities laws or, potentially, through regulation.  The Model Act has five core features.  Taken together, these provisions clarify and more closely align the interests and responsibilities of financial professionals, regulators, and law enforcement in regard to the reporting and prevention of senior financial exploitation.  These features include:

  • A mandatory reporting requirement applicable to qualified individuals of broker-dealers and investment advisers;
  • Notification to third-parties of potential financial exploitation with advance consent of the investor;
  • The authority to temporarily delay disbursement of funds;
  • Immunity from civil and administrative liability for reporting, notifications, and delays; and,
  • Mandatory sharing of records related to exploitation with law enforcement and state adult protective services agencies.

An explanation of the rationale for these provisions and the interplay between them is discussed in the commentary to each section of the Model Act.  Additional information about many of the policy recommendations embodied in the Model Act is included in the Endnotes to this report.

Since publication of the Model Act, two states – Alabama,[vi] and Indiana,[vii] have enacted statutes that contain provisions similar to those found in the Model Act including mandatory reporting to state securities regulators along with APS offices.  Additionally, Vermont[viii] has adopted the Model Act by regulation.  A fourth state, – Louisiana[ix] – has passed legislation that protects voluntary disclosures.


Notes:

[i] For more information about the NASAA Seniors Committee, see serveourseniors.org/about/policy-makers/advisory-council/.

[ii] For more information about NASAA’s Board-level Committee on Senior Issues and Diminished Capacity, see serveourseniors.org/about/policy-makers/advisory-council/

[iii] See Notice of Request for Comments Regarding NASAA’s Proposed Model Legislation or Regulation to Protect Vulnerable Adults from Financial Exploitation (Sept. 29, 2015), available at nasaa.org/37301/notice-of-request-for-comments-regarding-nasaas-proposed-model-legislation-of-regulation-to-protect-vulnerable-adults-from-financial-exploitation/.

[iv] FINRA Regulatory Notice 15-37, Financial Exploitation of Seniors and Other Vulnerable Adults (Nov. 30, 2015), available at finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-37.pdf.

[v] See Senior$afe Act of 2015, S.2216 / H.R. 4538, available at congress.gov/bill/114th-congress/senate-bill/2216/related-bills.

[vi] See SB 220, Alabama Regular Session 2016, available at http://alisondb.legislature.state.al.us/ALISON/SearchableInstruments/2016rs/PrintFiles/SB220-enr.pdf.

[vii] See SEA 221, Indiana Second Regular Session 2016, available at iga.in.gov/legislative/2016/bills/senate/221#document-72ee118f.

[viii] See Rule No. S-2016-01, Vermont Sec. Reg. § 8-5, available at dfr.vermont.gov/reg-bul-ord/vermont-securities-regulations.

[ix] See SB 338, Louisiana Regular Session 2016, available at egis.la.gov/legis/ViewDocument.aspx?d=1012781.

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