H.R. 2478: Financial Exploitation Prevention Act of 2025

This legislation, known as the Financial Exploitation Prevention Act of 2025, aims to modify the Investment Company Act of 1940 to better protect specified adults—defined as individuals aged 65 or older, or those 18 and older with mental or physical impairments—from financial exploitation when redeeming certain securities. Here are the key components of the bill:

Postponement of Redemption

The bill allows registered open-end investment companies and their transfer agents to postpone the payment or satisfaction of redeemable securities for more than seven days when they reasonably suspect that:

• The redemption request is made by a specified adult, and
• Financial exploitation has occurred, is occurring, or is being attempted in connection with the redemption.

This postponement can last for a maximum of 15 business days, with the possibility of a 10-day extension if further evidence of exploitation is present.

Notification Requirements

Upon electing to implement the postponement provisions, companies must:

• Request contact information for at least one trusted individual from the customer when the account holder is a specified adult.
• Document and retain any information received regarding the specified adult's contact.
• Inform the customer that the company may reach out to the trusted individual concerning potential exploitation or to confirm the customer’s status.

Internal Procedures and Reporting

Registered open-end investment companies and their transfer agents must establish internal procedures to:

• Identify and report signs of financial exploitation.
• Decide whether to release or reinvest the proceeds of postponed redemptions after conducting an internal review.
• Document all actions regarding postponement, including notifications sent to individuals identified by the customers.

Recommendations for Future Action

The bill mandates that the Securities and Exchange Commission (SEC) must report within one year of its enactment, making recommendations on changes needed to protect against financial exploitation of specified adults further. The SEC is required to consult several entities, including:

• The Commodity Futures Trading Commission
• The Bureau of Consumer Financial Protection
• The Financial Industry Regulatory Authority
• The North American Securities Administrators Association
• The Board of Governors of the Federal Reserve System
• The Comptroller of the Currency
• The Federal Deposit Insurance Corporation

Record Retention

The bill requires companies to keep records related to any postponement of redemptions, findings of exploitation, notifications made, and the results of any internal reviews conducted. These records must be made available to the SEC upon request.

Specified Adult Definition

The term "specified adult" is defined in the bill to include:

• Individuals aged 65 or older, and
• Individuals 18 and older who are believed to be incapable of protecting their own interests due to mental or physical impairments.

Relevant Companies

None found.