Financial Exploitation Prevention Act of 2025
The Financial Exploitation Prevention Act of 2025 would amend the Investment Company Act of 1940 to help protect certain adults from financial exploitation when redeeming investments. Specifically, it authorizes registered open-end funds and their transfer agents to delay the payment of redeemed securities if the redemption is requested by a “specified adult” and financial exploitation is suspected. To implement this, the bill creates new procedures for non-institutional, direct-at-fund accounts (where customers hold funds directly with a fund and its transfer agent) to collect and maintain contact information for an adult who can be contacted about potential exploitation. The act also requires disclosures to customers, adds internal procedures and recordkeeping duties for funds and transfer agents, and allows for limited extensions of payment while an internal review is conducted. A mandatory SEC report with regulatory recommendations is due within one year of enactment, and a range of federal and state regulatory bodies are slated for consultation on related issues. In short, the bill aims to slow or block potentially exploitative withdrawals by giving funds the option to postpone redemption payments, while creating safeguards, notification requirements, and oversight to prevent financial abuse of older adults or adults with impairments who cannot protect their own interests.
Key Points
- 1Creates a new framework (Section 22(h)) allowing postponement of redemption payments for certain securities when exploitation is suspected, for up to 15 business days, with possible extension.
- 2Establishes a new requirement for non-institutional, direct-at-fund accounts: funds and their transfer agents must obtain and retain a contact person (an adult) who can be reached regarding the account, and must inform customers that such contact may be used to address exploitation, verify status, or identify guardians or powers of attorney.
- 3Specifies conditions for extending the postponement (an additional up to 10 business days): requires an internal review, notification to the designated individuals about the extension, holding funds in a demand deposit account, and documentation/records retention.
- 4Imposes operational safeguards and disclosures: funds must develop internal procedures to identify exploitation, determine when to release or reinvest postponed proceeds, maintain records, and include a notice in the fund’s prospectus about potential postponements.
- 5Requires a congressional report within one year with regulatory and legislative recommendations, produced by the SEC in consultation with several major financial regulators and authorities (e.g., CFTC, CFPB, FINRA, NASAA, Federal Reserve, OCC, FDIC).