FINRA Fines Folio Investments $1.3 Million Over Best Execution and Supervisory Failures

Folio Investments, Inc. has agreed to pay a $1.3 million fine to resolve allegations brought by the Financial Industry Regulatory Authority (FINRA) concerning its order routing practices and supervisory systems.

According to the settlement, from at least January 2017 to the present, Folio failed to conduct "reasonable regular and rigorous reviews of execution quality," as required under FINRA rules governing best execution. During that period, the firm routed customer orders to two market centers that paid for order flow.

In 2022, Folio began directing a substantial portion of orders to another market center affiliated with the firm. FINRA found that Folio did not compare the execution quality obtained through its routing and execution arrangements with that available from competing markets.

The regulator also determined that while the firm reviewed price improvement when assessing execution quality, it did not consider other relevant factors. Additionally, its price improvement review was deemed unreasonable because it did not adequately account for differences in order types or sizes.

As a result, FINRA concluded that Folio violated Rules 5310(a), 5310 Supplementary Material .09 (Rule 5310.09), and 2010. The firm was further found to have breached Rules 3110 and 2010 by failing to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to ensure compliance with its best execution obligations.

Under the settlement, Folio has been censured, fined $1.3 million, and required to certify that it has implemented a supervisory system reasonably designed to address the identified deficiencies.

Folio became a FINRA member in December 1999. The McLean, Virginia-based firm operates six branch offices and employs approximately 50 registered representatives. It provides brokerage and custodial services. In September 2020, Folio was acquired by Goldman Sachs Group, Inc., though it continues to operate under its own broker-dealer registration.