The Financial Industry Regulatory Authority has imposed a $400,000 fine on robo-advisor Betterment Securities for a series of supervisory and compliance issues, including problems with how it protected customers as it was growing at a rapid pace — from about $120,000 in sales in 2011 to over $1.2 million in 2014.
The online-investing shop, founded in 2010, “did not ensure that its practices complied with certain FINRA and [Securities and Exchange Commission] financial and operational rules and interpretations,” the settlement document states.
For instance, from October 2013 to January 2015, it varied how it structured transactions on days when it was required to calculate reserve deposits “in order to reduce its Customer Reserve Account obligations,” according the FINRA.
This behavior amounted to “window dressing,” the letter of acceptance, waiver and consent explains, since Betterment altered “its practices on reserve computation days specifically to reduce its reserve formula computation and thereby reduce its reserve requirement. In addition, the firm failed to properly segregate clients’ wholly owned securities “in a good control location.”
The regulatory document also explains that Betterment “did not make and keep certain of its books and records in the matter required by SEC and FINRA rules” from June 2012 to December 2014. Plus, it maintained its stock records on a trade date basis and not a settlement date basis, as required.
FINRA also explained that Betterment failed to employ a supervisory system that was “reasonably designed to ensure compliance with the Customer Protection Rule and books and records rules.” Namely, the robo-advisor did not have a system in which key decisions were taken and overseen by “people with appropriate expertise.”