FINRA Reminds Firms of Trusted Contact Person Requirement, Benefits, and Related Effective Practices

FINRA remains very focused on preventing financial exploitation of seniors and other investors. Firms can expect to see senior investor protection as a key area of focus in the forthcoming 2023 Report on FINRA’s Examination and Risk Monitoring Program, as it has been perennially.

In the meantime, FINRA published Regulatory Notice 22-31 reminding members of their regulatory obligations under Rule 4512 with respect to “Trusted Contact Persons” or “TCPs,” explaining the benefits of designating TCPs, and providing resources to educate customers about the role and value of TCPs. Perhaps the most significant section of the notice is the non-exhaustive list of effective practices FINRA provided to assist firms with obtaining TCP information (see below).

FINRA Rule 4512(a)(1)(F) requires FINRA members to make reasonable efforts to obtain the name of and contact information for a TCP for non-institutional customer accounts to address possible financial exploitation; to confirm the specifics of the customer's current contact information, health status, or the identity of any legal guardian, executor, trustee, or holder of a power of attorney; or as otherwise permitted by Rule 2165. In particular, Rule 2165 permits firms to place temporary holds on securities transactions and account disbursements if the member reasonably believes that financial exploitation of a Specified Adult has occurred, is occurring, has been attempted, or will be attempted. “Specified Adult” means (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

In Regulatory Notice 22-31, FINRA provided three categories of effective TCP practices:

1. Firm prioritization of the value of collecting TCP information, including using creative practices to obtain TCP information (e.g., establishing target goals) and providing reminders to financial professionals.
2. Education of personnel and customers, including using customer-facing educational materials (e.g., material prepared by FINRA, NASAA, and the SEC), and discussing the benefits of designating TCPs with associated persons, supervisors, and customers.
3. Requesting TCP information, including by providing personnel with related scripts, making forms available to customers to request TCP information, requiring customers to provide an affirmative response to the request for TCP information during account opening, and reminding customers to provide TCP information online.

Regulatory Notice 22-31 serves as a welcome reminder of TCP-related obligations as firms may be seeking confirmation of the accuracy of customer account information pursuant to Exchange Act Rule 17a-3(a)(17), as many firms do in bulk at the beginning or end of each calendar year. For accounts that are not subject to the requirements in Exchange Act 17a-3(a)(17) — i.e., accounts for which a firm has not made a suitability determination — FINRA’s answers to FAQs note that a member should consider asking the customer to review and update TCP information on a periodic basis or when there is a reason to believe that there has been a change in the customer’s situation in order to satisfy the “reasonable efforts” obligations of Rule 4512.