No-Commission Broker to Pay Nearly $70 Million to Settle FINRA Compliance Charges
FINRA fined an online broker $57 Million and ordered it to pay another $12.5 Million in restitution for failing to supervise its technology and misleading customers.
FINRA faults the firm, which advertised no-commission retail brokerage, for over-relying on automated tools operated by an unregulated affiliate. The technology infrastructure caused widespread compliance failures including a series of outages and critical system failures, options trading approvals for unqualified clients, and an inadequate customer identification program that ignored red flags. FINRA also faults the BD for a business continuity plan that ignored technology disruptions and failures to report customer complaints. FINRA criticizes the firm for failing to implement manual supervision of technology systems. A FINRA Enforcement official warned, “This action sends a clear message—all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets. Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later.”
Fintech is revolutionizing financial services. But, fintech firms can’t take regulatory shortcuts by assuming their technologies not just work but also comply with regulatory mandates. We recommend that fintech firms marry the compliance and technology teams so that they can work together to ensure efficiency, economy and compliance. In the highly-regulated financial services world, it costs much less to ask permission rather than forgiveness.
Read FINRA Letter of Acceptance, Waiver, and Consent here.