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House Approves Financial Exploitation Prevention Bill

Legislation

The House of Representatives approved bipartisan legislation last week that would give the financial industry better tools to address suspected financial exploitation of seniors. 

On a Oct. 25 voice vote, the House approved the Financial Exploitation Prevention Act (H.R. 2265) sponsored by Rep. Ann Wagner (R-MO), the Vice Ranking Member of the House Financial Services Committee. 

H.R. 2265 would address suspected financial exploitation and abuse of seniors by codifying an SEC “no action letter” by amending the Investment Company Act to allow a company or agent of the company to postpone a payment or redemption of security if it was reasonably believed that such redemption was requested through the financial exploitation of a security holder. 

Under the legislation, specified adults include individuals age 65 or older, or an individual age 18 or older who a company reasonably believes has mental or physical impairment that renders the individual unable to protect his or her own interests.

The SEC released the no action letter (NAL 2018) in 2018, stating they would not take action against a registered open-end investment company or its SEC-registered transfer agent who, under certain specified conditions, paused a transaction under the reasonable belief that the client was the victim of financial exploitation. That same year, FINRA approved Rule 2165 allowing brokers to step in if they suspect that their elderly client is the victim of a financial crime. 

The bill also specifies that the postponement period may not extend past 15 business days. However, that period may be extended by an additional 10 business days if the company determines that the redemption is requested through the financial exploitation of a specified security holder. A state regulator or a court or administrative agency of competent jurisdiction may also extend the 15-day period, according to a summary of the legislation.

The bill also calls on the SEC to report to Congress on recommendations for legislative and regulatory changes on how to combat financial exploitation of seniors and vulnerable adults. 

“As more investors age into retirement, the risk of financial exploitation for elderly households only increases,” Rep. Wagner stated during House consideration of the legislation. “Roughly one in five senior investors are victimized by financial fraud, and those investors lose an estimated $2.9 billion annually in reported cases and, unfortunately, some estimates indicate that only 1 in 44 cases of financial abuse is ever reported.”

Financial Transparency Act  

Also on Oct. 25, the House approved the Financial Transparency Act of 2021 (H.R. 2989) sponsored by Rep. Carolyn Maloney (D-NY). That bill requires federal financial regulatory agencies to adopt specified data standards with respect to format, searchability and transparency for information they collect under current law. To that end, it establishes a framework to improve the efficiency of regulatory reporting, reducing compliance costs and improving the ability of investors, regulators and market participants to analyze data, according to a summary. The bill passed by a vote of 400-19.

Both bills now move to the Senate for consideration, where they have been referred to the Senate Banking, Housing and Urban Affairs Committee.