Introduction

Massachusetts regulators have imposed a $500,000 fine on Webull, an online brokerage firm, due to inadequate compliance operations that failed to keep up with the rapid growth of the company's customer base. Despite significant success since its launch in 2018, Webull faced challenges in maintaining compliance as its user base expanded.

Rapid Growth and Compliance Challenges

Webull experienced remarkable growth since its inception, reaching over six million accounts, including more than 100,000 in Massachusetts. In 2019 alone, the user base surged by 182%, followed by a staggering 443% spike in brokerage accounts the following year.

However, during these early years, the firm had only one employee serving as the chief compliance officer. This individual had to handle an overwhelming volume of customer and regulatory inquiries without the support of a dedicated compliance department. Massachusetts' Securities Division highlighted this lack of preparation as a deficiency in Webull's operations.

Failure to Anticipate Compliance Needs

According to a consent order reached between Webull and the state, during its rapid expansion phase, Webull failed to anticipate the corresponding increase in customer complaints and regulatory requests. The consent order further emphasized that the firm lacked a reasonable supervisory structure to ensure compliance with state and federal securities laws.

Webull has acknowledged the outlined facts in Massachusetts' consent order. However, the company has neither admitted nor denied whether these actions constitute violations of state law. At present, Webull has not responded to requests for comment regarding this matter.

Strengthening Compliance Efforts

To address these compliance issues, Webull took steps toward bolstering its compliance department. In February 2021, an additional compliance staffer was hired, ultimately being promoted to the role of Chief Compliance Officer (CCO). With this change, Webull intends to build a robust compliance department by hiring external professionals.

In conclusion, Massachusetts regulators have imposed a $500,000 fine on Webull due to inadequate compliance operations. While the company experienced rapid growth in its customer base, it failed to adequately prepare and support compliance efforts. Nonetheless, Webull is actively working to strengthen its compliance department to meet regulatory requirements and ensure a more robust future.

Webull Faces Compliance Issues in Massachusetts

The financial services sector regulator in Massachusetts is cracking down once again. This time, the target is online brokerage firm Webull. According to the state, Webull relied too heavily on third-party compliance consultants and an outside counsel instead of building in-house compliance operations, as its large user base necessitated.

One employee even claimed that the supervisory procedures prepared by the outside counsel did not apply to Webull's own business practices. To make matters worse, the consultant and counsel provided compliance documents with inaccurate information. For example, they reported that Webull had a main office in London before moving it to Paris. However, the consent order clarified that Webull has never had a main office in either city.

William Galvin, Massachusetts' secretary of the commonwealth and head of the Securities Division, has gained a reputation as an aggressive regulator. He has already dealt with another major online brokerage, Robinhood. Massachusetts implemented a uniform fiduciary standard for brokers and advisors, leading to a lawsuit against Robinhood based on allegations of targeting inexperienced investors and encouraging risky trading. Massachusetts even attempted to revoke Robinhood's license in the state, but the company challenged this in court and lost.

In the case of Webull, Galvin's office highlighted the firm's compliance operations as a low priority, pointing out issues such as lax employee training. It was discovered that Webull was slow to establish a formal training program for customer-service staff and lacked objective instruction on how to handle customer inquiries that may be deemed complaints.

Webull has made efforts to address these compliance issues and settled allegations with the self-regulatory organization Finra in March 2023. However, Massachusetts suggests that Webull only took substantial steps towards enhancing its compliance program after facing regulatory scrutiny.

Webull Agrees to Conduct Compliance Review

In light of recent regulatory scrutiny, Webull, a prominent online brokerage firm, has entered into a consent order with the state. As part of this agreement, Webull has committed to hiring an external consultant to conduct a comprehensive review of its compliance apparatus. The resultant report will outline the findings of this thorough examination.

To ensure adherence to established regulations and best practices, Webull has also accepted a censure as part of the agreement. This serves as a clear demonstration of their commitment to improving their compliance procedures and maintaining the highest standards in the industry.