By John McCrank
NEW YORK (Reuters) - The Financial Industry Regulatory Authority on Thursday said it fined retail brokerage Webull Financial $3 million for failing to exercise reasonable due diligence before approving customers for options trading, as well as issues around how it responded to customer complaints.
Wall Street's self-funded watchdog said Webull's automated system missed red flags and approved customers for options trading who did not meet the brokerage's eligibility criteria between December 2019 and July 2021.
Webull did not admit or deny FINRA's findings. The company declined to comment.
Options trading volumes have surged in recent years alongside rallies in so-called meme stocks, as individual investors have used the derivatives to place leveraged bets in hopes of outsized returns.
FINRA fined brokerage Robinhood (NASDAQ:HOOD) Markets a record $70 million in June 2021 for "systemic" failures, including failing to properly vet customers before allowing them to make risky options bets. In June 2020, a 20-year-old Robinhood customer took his own life after believing he incurred a large loss using the trading app.
FINRA on Thursday said Webull approved more than 2,500 customers under the age of 21 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.
Program errors in Webull's automated systems also led to 9,000 accounts being mistakenly approved for options trading even though those customers stated they had no investment experience, which should have made them ineligible to trade options under Webull's criteria, FINRA said.
Separately, the brokerage failed to commit the staff and other resources necessary to keep pace with the hundreds of thousands of customer communications it received, which included complaints, FINRA said.
Webull also did not report certain written customer complaints to FINRA, as required, the regulator said.