The Financial Industry Regulatory Authority (FINRA) said Wednesday that it has fined Apex Clearing Corporation $3.2 million for multiple regulatory violations related to its fully paid securities lending programme.
Apex Clearing Corporation Fined $3.2m by FINRA
The fine follows an investigation by the firm into Apex’s handling of customer loans, disclosures, and supervisory systems between January 2019 and June 2023.
According to FINRA, Apex entered into securities loans with certain customers without ensuring the loans were appropriate, as some customers did not receive loan fees for lending their shares.
Furthermore, from March 2021 to April 2023, the firm is said to have failed to provide proper disclosures about the risks and financial implications of securities lending, violating FINRA Rule 4330.
FINRA also claims Apex distributed misleading documents to more than five million retail investors, inaccurately stating that customers would receive a loan fee.
In reality, the regulator states that some customers received no compensation, while those whose shares were borrowed over a dividend date incurred tax consequences due to payments classified as cash-in-lieu of dividends.
Beyond disclosure failures, FINRA found Apex lacked an adequate supervisory system for its securities lending programme. The firm did not establish written supervisory procedures to ensure compliance with regulatory standards, violating FINRA Rules 3110 and 2010.
As part of the settlement, Apex must implement corrective measures within 180 days, with a senior management official certifying compliance.
FINRA stated that Apex’s failure to meet industry standards warranted significant enforcement action.
Apex accepted and consented to the findings by FINRA without admitting or denying them.
