Betterment Hit with $400K Fine
Robo-advice pioneer Betterment has landed in hot water with Finra, with the industry’s self-regulator fining the firm for failures in complying with customer protection and books and records rules, according to a Finra letter of acceptance, waiver and consent.
During a period of rapid growth for the firm from October 2013 through January 2015, Betterment allegedly used loans from its clearing firm instead of customer deposits, as required, to fund its pre-settlement withdrawal program, Finra says. This amounted to “window dressing” to reduce Betterment’s reserve requirement, according to the regulator. Furthermore, from October 2013 through August 2014, the company failed to properly separate customers’ wholly owned securities, Finra says.
In addition, from June 2012 through December 2014, Betterment failed to properly maintain books and records as per Finra and SEC rules, such as not creating and maintaining certain records of cash movements, according to Finra. Finally, the company lacked an adequate supervisory system to comply with customer protection and books and records rules, the regulator says. Betterment’s former principal who held primary responsibility for some of the firm’s compliance during the period in question, for example, had no training or experience in applying the relevant rules, Finra alleges.
The regulator censured Betterment and fined it $400,000, according to the letter of consent. Betterment has no other relevant disciplinary history with Finra, the SEC or any state securities regulators, according to Finra.