What is FINRA Rule 4512?
The Customer Account Information Rule – FINRA Rule 4512 was created by the Financial Industry Regulatory Authority (FINRA). FINRA is a self-regulator authorized by the United States Congress to oversee broker-dealer firms and protect investors.
FINRA Rule 4512 is a regulatory requirement that requires broker-dealers to make and keep records of the “essential facts” about each customer’s account. The rule is designed to ensure that broker-dealers have accurate and up-to-date information about their customers and their investment objectives, so they can provide appropriate recommendations and advice.
Under FINRA Rule 4512, broker-dealers are required to obtain and maintain the customer’s name, address, and telephone number; date of birth; employment status and occupation; and the name and address of any employer or other financial institution with which the customer has an account.
Trusted Contact System
The brokerage firms are also required to know the customer’s investment objectives and any other information the broker-dealer considers necessary to make suitable recommendations.
The rule also requires broker-dealers to make and maintain a record of any information they obtain about a customer’s investment experience, financial situation, and risk tolerance. Amendments to FINRA Rule 4512 also require brokerage firms to make reasonable efforts to implement a “trusted contact” system into their customer accounts.
Following the initial effort, Rule 4512 requires members to seek to update the trusted-contact information for those accounts subject to the requirements in Exchange Act Rule 17a-3. Specifically, FINRA Rule 4512(c) provides that a member is required to make reasonable efforts to obtain and/or to update where appropriate the name of and contact information for a trusted contact consistent with the requirements in Exchange Act Rule 17a-3(a)(17).
FINRA 4512 and Elder Fraud
FINRA Rule 4512 is an important tool for protecting seniors from financial exploitation. Seniors are often targeted by fraudsters and scammers who attempt to take advantage of their financial vulnerability, and the rule helps ensure that broker-dealers have accurate and up-to-date information about their senior clients to detect and prevent such exploitation.
The rule requires broker-dealers to obtain and maintain essential facts about each customer’s account, including the customer’s age and investment objectives. For senior customers, broker-dealers must also take into account their specific needs and concerns, including any health or financial issues that may affect their investment decisions.
Broker-dealers are also required to establish and maintain procedures to detect and report financial exploitation of senior customers. These procedures may include placing holds on disbursements or transactions, contacting a trusted contact person designated by the customer, or reporting suspicious activity to relevant authorities.
Additionally, FINRA has issued specific guidance to broker-dealers regarding the protection of senior investors. This includes the requirement for training staff to identify and report suspected financial exploitation of seniors. These measures help ensure that seniors are protected from financial exploitation and that broker-dealers are fulfilling their responsibilities to their clients.
FINRA Rule 2165 Financial Exploitation of Adults and “Trusted Contact”
FINRA proposed some changes to the rule in 2017 due to concerns about senior exploitation. FINRA Rule 2165 (Financial Exploitation of Specified Adults) and amendments to FINRA Rule 4512 (Customer Account Information) became effective in February 2018.
These two rules work together to ensure firms pay closer attention to seniors, and potentially other specified adults, who may be potential victims of fraud and abuse.
A trusted contact is a person designated by the customer who the broker-dealer can contact in the event that the customer becomes incapacitated or is suspected of financial exploitation. The trusted contact’s role is to provide information about the customer’s health status or financial situation. This may help the broker-dealer make decisions that are in the best interest of the customer.
Protecting Vulnerable Seniors
FINRA Rule 4512 and FINRA Rule 2165 are both designed to help protect vulnerable investors, including seniors, from financial exploitation. However, they differ in their specific requirements and application.
FINRA Rule 2165 permits broker-dealers to place temporary holds on disbursements or transactions from the accounts of certain customers if there is a reasonable belief in financial exploitation. The rule allows broker-dealers to place a temporary hold on disbursements or transactions if they suspect that a customer is being exploited, and to notify a trusted contact person designated by the customer.
The key difference between the two rules is that FINRA Rule 4512 is a record-keeping requirement, while FINRA Rule 2165 provides a mechanism for broker-dealers to take action in response to suspected financial exploitation. Rule 4512 requires broker-dealers to obtain and maintain essential information about their customers, while Rule 2165 allows broker-dealers to take action if they suspect that a customer is being exploited.
FINRA Rule 4512 Violations
Examples of brokers or firms who have been disciplined by FINRA for violations of FINRA Rule 4512 in the past include:
-A broker-dealer that failed to establish and maintain adequate procedures to detect and report potential financial exploitation of senior customers.
-A registered representative who failed to update customer account information, including the customer’s address and employment status, for several years.
-A broker who made unsuitable investment recommendations to a customer, despite having inaccurate or incomplete information about the customer’s investment objectives and financial situation.
-A firm that failed to obtain the required documentation to verify the identity of new customers.
These are just a few examples of potential violations of FINRA Rule 4512. FINRA takes violations of its rules very seriously and imposes disciplinary actions against individuals and firms who don’t comply with its requirements. It’s essential for broker-dealers to understand and comply with all applicable rules and regulations, including Rule 4512, to protect investors and maintain the integrity of the securities industry.
Hiring a Securities Attorney
When disputes arise between investors and securities firms or brokers, they may be required to resolve their differences through FINRA arbitration. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision.
The White Law Group helps clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary.
In addition to their knowledge of FINRA rules and procedures, the FINRA attorneys at the White Law Group also have experience in securities law and litigation. They can provide valuable guidance to clients on the strengths and weaknesses of their case, the likelihood of success, and the potential risks and rewards of pursuing arbitration.
If you have an investment related dispute, the securities attorneys at the White Law Group may be able to help you. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.
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For a free consultation with a securities attorney, please call the offices at 888-637-5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on The White Law Group, and its representation of investors, please visit WhiteSecuritiesLaw.com.
Tags: customer account information, Financial Industry Regulatory Authority, finra attorneys, FINRA rule 2165, FINRA rule 4512, FINRA Rules, securities attorneys, suitability Last modified: March 18, 2024
