Finra Slaps $400K Fine On Betterment For Failing To Meet Regulatory Standards

The Financial Industry Regulatory Authority (FINRA) slapped a fine of $400K on Betterment, a digital advice company, for allegedly failing to fulfill regulatory standards related to maintaining books and records from 2012 to 2014. According to FINRA, Betterment was found guilty of violating customer protection rules and was allegedly involved in “window dressing” between October 2013 and January 2015 when the firm was growing rapidly.

Betterment accused of misusing loan funds

In its allegations, FINRA has said that the leading roboadvisor used loan amounts from its clearing firm instead of using the customer deposits as is the regular procedure for funding the pre-settled withdrawal program. Instead, Betterment sold the securities when it was expected to calculate its reserve deposits.

According to FINRA, the firm tried to reduce its reserve formula computation by making changes in practices on the days of reserve computation. This process directly reduced reserve requirements. In its settlement report, the regulatory authority stated that Betterment did not properly set aside the securities of the customers between October 2013 and August 2014.

A spokeswoman of Betterment in her statement said, “Betterment Securities worked cooperatively with FINRA during the 2014 review to address its concerns and we are proud that every examination since then has been completed without any deficiency findings.” She further added that since the examination of 2014, the company’s securities have been keenly following policies and procedures and have made many changes including personal modifications to ensure that all the applicable regulations are fulfilled.

 Will the allegations affect Betterment’s progress?

Growth has its drawbacks. Facebook did move very fast with its special techniques and in the process broke many fundamentals such as privacy. Similarly, Zenefits faced a fine of almost double the amount that FINRA has slapped on Betterment for an unlicensed insurance brokerage. Even Theranos was penalized for wire fraud.

But it did not affect these companies much. Even now despite the penalties, investors still find the assets of roboadvisors quite attractive. With other companies like SmartAsset and SigFig raising millions using scalable models, Betterment may be able to do the same and come out of the current problem successfully.

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