On January 1, 2019, Alaska became the 21st state with a “report and hold” law. Report and hold laws provide a protocol for broker-dealers and state-registered investment advisers to report suspected financial exploitation of senior and vulnerable investors to governmental agencies. The laws also permit firms to delay suspicious disbursements (and, in some states, suspicious transactions). In six of the 21 states, these laws also apply to SEC-registered investment advisers. Significant variances among the state laws create analytical and practical challenges for industry professionals trying to keep abreast of the changing mosaic of laws.
In addition to the report and hold laws, all states have (and for some time have had) so-called “Adult Protective Services” (“APS”) statutes. Some APS statutes are more aggressive than others -- some provide for misdemeanor criminal penalties for failure to report when financial exploitation is suspected. Here too, unique provisions in each state’s APS statute create challenges.
To aid professionals in the financial services industry, Bressler created a detailed summary of the report and hold and APS laws in its web-based 50 State Survey of laws governing senior and vulnerable investors. On a daily basis, industry personnel rely on the Survey as a trusted resource to navigate the mosaic of laws.
Here are 10 examples of how states treat the same issue in different ways:
- 10 APS statutes provide that a knowing and/or willful failure by broker-dealer/ investment adviser personnel to report suspected abuse is a misdemeanor criminal offense; Four APS statutes create criminal liability with no specification of the requisite intent.
- 22 states require immediate/prompt reporting by broker-dealers and state-registered investment advisers; 17 require immediate/prompt reporting by SEC-registered investment advisers.
- One state requires disclosure of suspected financial exploitation to third parties “previously designated” by the vulnerable adult; 11 states permit disclosure of suspected financial exploitation to third parties “previously designated” by the vulnerable adult; eight states permit disclosure to third parties “reasonably associated” with the vulnerable adult; and one state permits disclosure to third parties “closely connected” to the vulnerable adult.
- Five jurisdictions require firms to train their client-facing personnel about financial exploitation.
- In one state, immunity under its “report and hold” law is predicated on completion of the required seniors training.
- Two states require all registered representatives and investment adviser representatives who suspect financial exploitation to escalate the suspicion to the firm.
- One state requires a firm to adopt policies and procedures regarding the firm’s reporting obligations.
- There are two states with a “report and hold” statute, similar to FINRA’s Rule 2165, where reporting is not required.
- The permissive hold statutes of two states include a mandate to place a hold on disbursements in certain circumstances (for example, a governmental direction to do so). No state has a mandatory hold requirement absent special circumstances.
- Four states require their agencies to disclose the status of their investigation to the reporting firm; One state permits its agencies to disclose the status of their investigation to the reporting firm.
The particulars of the state laws can be found in the Bressler 50 State Survey. Statistical data gleaned from traffic to the Survey shows which state laws draw the most, and least, interest. Over the last 60 days, the top five most frequently viewed states were: California, Florida and New York (all have a large senior population); Texas (it passed one of the most complicated report and hold laws); and New Mexico (which has a unique training provision). The least viewed states were Rhode Island, North Dakota, Montana, Wyoming and Utah.
Looking forward, Florida, Connecticut, Washington D.C. and Wisconsin will have legislation likely to be debated in 2019, and we expect those jurisdictions to pass bills in their 2019 legislative sessions. We also anticipate that FINRA will revisit its report and hold rule and potentially expand it to allow holds on transactions as well as disbursements. That would align FINRA’s rule with the seven states that have laws permitting transactional holds (three of which became law in 2018).
Meanwhile, Bressler will continue to monitor this legislative and rulemaking activity and will provide updates to the Survey as they happen.