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FINRA fines Webull Financial $3 million over approval of customers for options trading

On Behalf of | Mar 20, 2023 | FINRA Compliance

The Financial Industry Regulatory Authority announced it is penalizing Webull Financial LLC for violations in its procedures for approving customers for options trading.

FINRA announced a fine of $3 million against the firm after finding it did not exercise reasonable due diligence in screening customers for approval when they applied for options trading. The violations cover the period between December 2019 and July 2021.

According to the authority, Webull used an automated system to review the applications, but that system did not compare new applications with information provided previously by customers. “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,” FINRA said in its news release.

As a result, over 2,500 customers under age 21 were approved to trade options spreads, even though Webull’s own criteria required that customers have at least three years of options trading experience before they are approved to trade at that level. The errors in the automated system also resulted in 9,000 accounts being mistakenly approved for options trading despite the customers stating they did not have any investment experience.

FINRA also found that Webull’s supervisory system for catching and responding to customer complaints was not reasonably designed, and the firm did not commit the staff and resources necessary to respond to the hundreds of thousands of customer communications it received.

“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.”

Webull settled the matter by consenting to the entry of FINRA’s findings, but did not admit or deny the charges.

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