The Financial Industry Regulatory Authority (FINRA) fined broker-dealer Webull Financial $3 million for alleged failures related to customer due diligence and processing and reporting of customer complaints.
The details: In its order Thursday, FINRA said flaws in Webull’s automated, electronic system it used to approve or disapprove customer accounts for options trading from 2019-21 “resulted in customers being approved for options trading authority who did not satisfy the firm’s eligibility criteria or whose accounts contained red flags that options trading was potentially inappropriate for them.”
One flaw FINRA identified with the system was how it handled requests by young customers—18 and 19 years old—who applied for “Level 3” options trading authority, which required three years of options trading experience.
In two cases, the system rejected young customers’ initial requests for Level 3 status when they claimed they had 1-2 years of trading experience. But the system approved the applications when they changed that answer to five years of experience.
In another instance, the system twice denied a customer for Level 3 trading status who had previously claimed to have no trading experience, then 1-2 years. It later approved him when he claimed to have five years of experience without verifying whether that was true.
FINRA concluded, from 2018-21, the firm’s supervisory system and written procedures for that system were not reasonably designed to identify and respond to customer complaints. Webull also did not maintain and keep current an options complaint log, as required by FINRA, over that same period.
Compliance ramifications: As part of the settlement, Webull pledged to remediate the issues that led to the alleged violations. The company must implement a supervisory system for overseeing its due diligence system, with written procedures, and submit a written certification of the changes from a senior manager to FINRA within 180 days.
The company neither admitted nor denied FINRA’s findings.
Webull did not respond to a request for comment.