Spotting and Reporting "Red Flags": New York's Department of Financial Services Offers Regulatory Guidance to Financial Institutions to Combat the Exploitation of New York Senior Citizens

Insurance Law Alert

March 17, 2015



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Recently, Superintendent Lawsky of New York’s Department of Financial Services (DFS) issued guidance to financial institutions conducting business in New York and urged the adoption of best practices to better identify and encourage the reporting of “red flags” pertaining to elder financial abuse.  The guidelines are geared toward financial institutions such as banks and credit unions, recognizing that training bank tellers, account managers and financial advisers, which includes licensed insurance agents and securities registered representatives who frequently deal with elderly customers is key in preventing elder financial abuse. When employees observe “red flags,” a prompt investigation is warranted. Some examples of red flags include unusual banking activity, excessive interest in the elder’s finances by a caregiver or another individual, and the elderly customer’s exhibition of fear in the presence of a caregiver or another individual.  The guidelines also call upon financial institutions to report these red flags to relevant federal and state authorities, including Adult Protective Services, found in every county of New York.

The financial exploitation of seniors is, unfortunately, not a new problem. The SEC’s 2006 Senior Summit, FINRA’s Notice to Members and various state insurance bulletins, alerts and regulations scrutinizing the use of products, titles and sales efforts geared toward inducing seniors demonstrate on-going efforts to combat the financial exploitation of senior citizens.

As a large population of people live longer, the issue becomes more broad based. The regulatory definitions of “Senior” now include a significant percentage of the U.S. population. Under the New York guidelines, an “Elder adult” is defined as 60 years or older. According to U.S. census and N.Y. demographic data, individuals over the age of 60 make up about 18.5% of the United States and about 12% of New York.  

As a result of changing demographics and ongoing abuse, DFS is urging its financial institutions to adopt certain best practices:

  • Use a “Red Flag” system, i.e. develop a plan to detect and report suspected elder financial exploitation;
  • Conduct regular training on the institution’s prevention policies and procedures; and
  • Designate staff to investigate suspected elder financial abuse issues and report suspected abuse to Adult Protective Services.

 

Take away to financial institutions (including banks and credit unions) doing business in New York:

  • Be aware of the new DFS recommended guidelines.
  • Review company policies for identifying, investigating and reporting red flags of elder financial exploitation in view of these recommended best practices.
  • Anticipate DFS’ survey with respect to your current policies and procedures and be ready to enhance them in accordance with these best practices issued by DFS.

For more information, please contact Sara Mazzolla.