The Financial Industry Regulatory Authority (FINRA) published disciplinary actions against four firms for failing to establish, maintain, and enforce a reasonably designed supervisory system over fully paid securities lending.
FINRA on Tuesday published settlements with SoFi Securities, Open to the Public Investing, M1 Finance, and SogoTrade for alleged violations of Rules 3110 and 2010. SoFi, Open to the Public Investing, and M1 Finance were each fined $500,000 and ordered to pay restitution of varying amounts, while SogoTrade was fined $100,000 plus restitution.
In the cases of SoFi, M1 Finance, and SogoTrade, the alleged violations were observed starting from January 2019 and into this year. The period noted at Open to the Public Investing was May 2020 through September 2022.
The details: FINRA faulted each firm for distributing documents to retail investors containing misrepresentations about the compensation those investors would receive for participating in fully paid securities lending. The misleading statements allegedly affected millions of investors at SoFi, Open to the Public Investing, and M1 Finance, while SogoTrade only impacted approximately 17,000 retail customers.
At each firm, reasonable steps were not taken regarding making appropriateness determinations prior to enrolling customers in the respective fully paid securities lending programs. Instead, new customers were enrolled at account opening.
Compliance considerations: FINRA found each firm’s written supervisory procedures regarding fully paid securities lending to be insufficient. All four firms have since addressed the matter, according to the self-regulatory organization.
None of the firms admitted or denied FINRA’s findings.