Online brokerage Webull Financial will pay $3 million in fines to settle charges that it didn’t perform the necessary due diligence when screening customers to be approved for options trading, according to the Financial Industry Regulatory Authority.
According to the FINRA charges, in some cases the firm approved people for options trading who were under 21 years old, and therefore could not possibly have the three years’ experience in options trading needed to qualify.
Christopher Kelly, FINRA senior vice president and acting Enforcement Department head, said the fine underscored the obligations all FINRA-registered firms need to meet, regardless of size or growth rate.
“Before they approve customers for options trading, firms must establish systems and procedures that identify essential facts about their customers’ trading knowledge and experience,” he said. “Firms must also commit the resources necessary to address customer complaints and report those complaints to FINRA when required.”
Webull Financial first registered with FINRA in early 2018, and began offering trading for customers in May of that year, with options trading opportunities following in December 2019. The firm was based in New York City, with three branch offices and about 75 registered reps, and offered “low cost, self-directed trading” for retail investors via its mobile app and website. Webull’s clearing firm is Apex Clearing, according to its site.
But from December 2019 through July 2021, the firm constantly fell short in judging customers’ qualifications for options trading, according to FINRA. In some situations, customers who were under 21 years old claimed they had three years of options trading experience to meet the requirements to trade options, but customers need to be at least 18 to open brokerage accounts.
FINRA argued the firm’s systems kept missing eligibility criteria that would disqualify these traders or missed red flags in information the firm already had. For almost a year, the firm didn’t notice its automated system was incorrectly programmed, meaning more than 9,000 accounts were approved that didn’t meet the criteria for options trading.
“In particular, the firm approved accounts for level 1 options trading authority that 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,” the settlement read.
From mid-2020 through July 2021, the firm approved more than 2,500 customers under 21 years old for level 3 authority. In one case, a customer applied for authorization on his 18th birthday and was rejected, but only two days later, the customer resubmitted an application saying he had five years’ experience and was approved.
Additionally, FINRA found that Webull’s supervisory system for catching and responding to customer complaints was “not reasonably designed,” and the firm failed to meet the rise in customer complaints with the needed staff and resources; according to FINRA, total customer communications numbered in the “hundreds of thousands.”
The firm also didn’t inform FINRA about certain customer complaints, including those involving allegations of theft, as it was required to do.
In addition to the fine, the firm agreed to a censure, but didn’t admit nor deny FINRA’s findings.
A spokesperson for Webull did not respond to a request for comment by press time.
