FINRA proposes updated protection rules for accountholders

In January 2026, FINRA proposed additional rules that are intended to address fraud and financial exploitation, particularly with respect to elderly customers.  FINRA's Regulatory Notice 26-02, which describes the proposal, may be accessed here. The proposal arises from FINRA's concern that financial fraud remains a major risk to accountholders, especially in the case of elderly or other vulnerable investors, and that fraudulent activity is becoming increasingly widespread and complex, and more likely to have disastrous effects on these customers.

The proposed rule has several key substantive provisions:

• amendments to FINRA's rules that are designed to promote the adoption and usefulness of customers’ trusted contacts; 
• provisions that would allow member firms greater flexibility to extend temporary holds when they reasonably suspect that financial exploitation of a senior or vulnerable adult is occurring;
• provisions that would offer broker-dealers a new, optional, shorter temporary hold (a “speed bump”) to protect customers of any age from suspected fraud.

Trusted Contacts/Emergency Contacts

Current FINRA Rule 4512 requires member firms to attempt to obtain information for a "trusted contact" when non-institutional customers (of all ages) open accounts. This contact is intended to serve as a resource for the member firm in various situations, including responding to concerns about possible financial exploitation. 

Under the proposal, broker-dealers could use the alternative term “emergency contact” that may be designated by account holders.  This new term may be better understood, or more frequently used, by some accountholders, which may increase the number of accounts that are ready to make such a designation.  Greater customer usage of this designation may enhance the overall ability of brokers to protect their customers.  (However, the term is not intended to have a different meaning from a "trusted contact" for purposes of the rules.)  In addition, a brokerage customer could name a trusted or emergency contact for use across all of the customer’s accounts at the member firm, in order to help ensure that the designated contact would be contacted as to all relevant accounts.

Amendments to "Temporary Hold" Rules

Current FINRA Rule 2165 permits a member firm to place a temporary hold on securities transactions or disbursements of funds or securities from the account of a “specified adult” customer when the member firm reasonably believes that financial exploitation of that adult may be occurring.  These "specified adults" include persons aged 65 or more, or any other adult that the broker-dealer believes may have a mental or physical impairment that renders that person potentially unable to protect his or her own interests. 

Rule 2165 currently permits the imposition of a temporary hold for initial periods of up to 25 business days, with the possibility of one additional 30-business-day extension (accordingly, up to 55 business days) if the member firm reports the issue to a regulator or agency or a court, and the member firm continues to have a reasonable belief of financial exploitation.  The current rule allows broker-dealers to extend a temporary hold beyond the 55 day maximum upon the request of a state agency.

Some market participants have indicated that the 55-business day provision has not necessarily been sufficient in duration for the relevant governmental agencies to properly respond.  An appropriate investigation may take a substantially longer period of time.  Accordingly, under the proposal, Rule 2165's current maximum temporary hold period would be extended from 55 business days to 145 business days.  Each temporary hold could be extended through three increments of 30 business days, provided that the FINRA member, for example, makes reasonable follow-up efforts with the relevant governmental authority.  The proposal also contains several modifications that are designed to provide enhanced clarity and flexibility to make the rule more effective, for example, specifying that U.S. federal agencies (in addition to state agencies) could be relevant under the rule.

New Speed Bump Proposal

FINRA's proposal includes a new Rule 2166, which would permit brokers to implement a temporary delay of up to five business days on disbursements or transactions when they determine that they have a reasonable belief that fraud is occurring.  This new safe harbor would be used to notify their customers of a suspected fraud, and would be applicable to all customers, regardless of their age or mental capacity.  Accordingly, the provision is designed to extend some of the protections of Rule 2165 across a wider range of customers.  Within two business days of imposing such a delay, the member firm would be required to notify the authorized parties on the relevant account and a trusted contact person of the temporary delay, and the reason for the delay. The temporary delay would expire within five business days after placing the hold, unless otherwise terminated or extended by a governmental body or a court.  

Nature of Current and Proposed Fraud Prevention Rules

Other than the existing requirement to offer customers the option to name a trusted contact, the existing and proposed rules are permissive rather than mandatory.  As described in the rule proposal, “FINRA has developed a regulatory framework designed to provide member firms with flexible tools to protect senior and vulnerable investors from financial exploitation.”  The rules do not require members to actually use any of these tools or even to spot red flags.  If a member determines that a particular action is warranted to prevent fraud, then the firm must follow certain steps set forth in the rules.  The rules stop short, however, of obligating members to take affirmative steps to identify and prevent fraud or exploitation.  

Comment Period

The proposed rules are subject to a comment period for market participants, which will end on March 9, 2026.