Webull Fined $3M by FINRA for Options Customer Approval Violations

The Financial Industry Regulatory Authority (FINRA) has fined Webull Financial LLC $3 million for its violation of options customers approval, including 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.

According to the regulator's announcement on Thursday, 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, which 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, more than 2,500 customers under the age of 21 was approved 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.

Furthermore, the firm mistakenly approved 9,000 accounts for options trading due to program errors in the firm's automated systems, and those clients claimed that they didn't have any investment experience, which is "an acknowledgement that should have made the customers ineligible to trade options under the firm's eligibility criteria."

In terms of supervisory system, the watchdog found that the system created to identify and respond to customer complaints by Webull was not designed reasonably. The firm didn't deal with massive customer communications and complaints it received with enough staff and other resources. Beside, the firm failed to report certain written customer complaints to FINRA, as required, including complaints that involved allegations of theft or misappropriation.

Christopher J. Kelly, Senior Vice President and Acting Head of FINRA's Department of Enforcement, commented: "The obligations on all FINRA member firms are clear, regardless of their size, rapid growth, or business model. 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."

Earlier in April 09, 2021, FINRA had reminded all firms of their obligation in Notice 21-15 of "Options Account Approval, Supervision and Margin Requirements".

In settling this matter, Webull consented to the entry of FINRA's findings, without admitting or denying the charges.

Webull is not the first company to be fined by FINRA this year. In January, Deloitte Corporate Finance, LLC​ paid fine of $200,000 for failure to retain business-related iMessages; and Nomura Securities International Inc. was fined $125,000​ for inaccurately calculating its net capital.