Firm Also Failed to Maintain Supervisory System, Report Customer Complaints
FINRA announced today that it has fined Webull Financial LLC $3 million for not exercising reasonable due diligence before it approved customers for options trading; not maintaining a supervisory system reasonably designed to identify and respond to customer complaints; and not reporting certain written customer complaints to FINRA as required.
FINRA found that between December 2019 (when Webull first offered options trading to customers) and July 2021, the firm did not exercise reasonable due diligence before approving customers for options trading. During this period, the firm employed an automated system to review customer applications for options trading, but the system failed to compare new applications with information previously provided by the customer. This led to Webull’s approval of customers for options trading who did not satisfy the firm’s eligibility criteria, or whose accounts contained red flags that options trading was potentially inappropriate for them. For example, the firm approved more than 2,500 customers under the age of 21 to trade options spreads, even though the firm’s eligibility criteria required customers have at least three years of options trading experience before being approved for that trading level.
In addition, due to program errors in the firm’s automated systems, the firm mistakenly approved 9,000 accounts for options trading even though those customers stated that they did not have any investment experience — an acknowledgement that should have made the customers ineligible to trade options under the firm’s eligibility criteria.
FINRA separately found that from May 2018 through December 2021, Webull’s supervisory system created to identify and respond to customer complaints was not reasonably designed. Among other things, the firm failed to commit the staff and other resources necessary to keep pace with the hundreds of thousands of customer communications it received, which included complaints. The firm also did not report certain written customer complaints to FINRA, as required, including complaints that involved allegations of theft or misappropriation.
“The obligations on all FINRA member firms are clear, regardless of their size, rapid growth, or business model,” said Christopher J. Kelly, Senior Vice President and Acting Head of FINRA’s Department of Enforcement. “Before they approve customers for options trading, firms must establish systems and procedures that identify essential facts about their customers’ trading knowledge and experience. Firms must also commit the resources necessary to address customer complaints and report those complaints to FINRA when required.”
FINRA reminded firms of their obligation to determine whether to approve customers to trade options in Regulatory Notice 21-15. In addition, FINRA announced a targeted examination regarding firms’ supervision and approval of options accounts in August 2021, and published an update on that targeted examination, including preliminary findings, in November 2022. FINRA has included information regarding firms’ obligations to report customer complaints as a topic in its Reports on FINRA’s Examination and Risk Monitoring Program for 2021, 2022, and 2023.
In settling this matter, Webull consented to the entry of FINRA’s findings, without admitting or denying the charges.
About FINRA
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
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