Options Customer Approval Violations Cost Webull $3 Million FINRA Fine

Webull Financial LLC has been fined $3 million by the Financial Industry Regulatory Authority (FINRA) for failing to perform adequate due diligence before approving customers for options trading, failing to maintain a supervisory system intended to detect and address customer complaints, and failing to submit required written customer complaints to FINRA.

Webull allegedly failed to perform a fair amount of due research before authorizing clients for options dealing between December 2019 and July 2021, claims FINRA. The company used an automatic system to examine customer applications for trading options, but the system did not match new applications with data that the customer had previously given. Due to this, customers who did not meet the firm's eligibility requirements or whose accounts showed warning signs that options trading might not be suitable for them were approved. For instance, despite the firm's eligibility requirements requiring customers to have at least three years of options trading experience before being approved for that trading level, Webull approved more than 2,500 customers under the age of 21 to trade options spreads.

The regulator also discovered that Webull mistakenly permitted 9,000 accounts to trade options, despite the fact that those clients had admitted they lacked investment experience, which should have disqualified them from doing so according to the firm's eligibility requirements.

Additionally, FINRA discovered that Webull's supervisory system created to recognize and address customer complaints was not reasonably designed from May 2018 through December 2021. The business neglected to devote the required personnel and other resources to handle the hundreds of thousands of customer contacts, including grievances. Additionally, the company failed to inform FINRA of any documented client reports that contained claims of larceny or embezzlement.

Christopher J. Kelly, Senior Vice President and Acting Head of FINRA's Department of Enforcement, declared that regardless of their size, rapid growth, or business model, all FINRA member firms have clear obligations. “Companies must set up systems and procedures that pinpoint crucial details about their customers' trading knowledge and experience before approving customers for options trading. Additionally, businesses must devote the resources required to resolve customer complaints and, when necessary, report those complaints to FINRA.”

In Regulation Notification 21-15, FINRA informed companies of their duty to decide whether to authorize clients to trade options.

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