FINRA Fined TradeZero America for Regulatory Violations

FINRA fined TradeZero America $250,000 for privacy notice inaccuracies, addressing regulatory compliance and customer data protection.

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TradeZero America was fined $250,000 by FINRA following allegations of regulatory violations from July 2020 to October 2022. As a FINRA member since 2016, the firm faced scrutiny over its use of social media influencers and the accuracy of its privacy notices to customers.

The settlement addresses concerns that TradeZero America paid social media influencers to promote its services without ensuring the communications were fair, balanced, and compliant with regulatory standards. FINRA’s investigation revealed that these influencer posts often contained exaggerated and promissory statements, breaching FINRA rules. Additionally, the firm neglected to review and retain records of the videos and posts published by the influencers.

“TradeZero America did not review its influencers’ videos before posting on social media platforms, nor did the firm retain those videos. The firm also did not review or retain influencers’ posts made in online interactive electronic forums,” FINRA Commented.

FINRA Fined TradeZero America for Regulatory Violations

Moreover, between January 2020 and January 2022, TradeZero America inaccurately described how it would use customers’ nonpublic personal information in its privacy notices. According to FINRA, the firm shared sensitive customer information with non-affiliated third parties for marketing purposes without proper disclosure.

This is not the first time FINRA has fined a trading firm for influencer actions. M1 Finance faced an $850,000 penalty in March for misleading social media posts.

TradeZero America neither admitted nor denied the findings but has agreed to the sanctions, including the $250,000 fine and a censure. The firm has since revised its supervisory procedures to ensure compliance with FINRA rules. These revisions include mandatory review and approval of social media communications by a registered principal and accurate privacy disclosures.

Financial influencers, or “influencers,” are increasingly significant in the financial world. A recent study indicated that average investors trust influencers more than their friends or family for financial advice. Gerhard Van Deventer, Divisional Executive of Enforcement at the Financial Sector Conduct Authority (FSCA), warned that the influence of these figures poses risks to the savings and investments of retail traders in other regulatory actions. FINRA recently fined BofA Securities $90,080 for filing untimely or inaccurate notifications and failing to maintain an adequate supervisory system.

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