Broker-dealer Apex Clearing Corp. has agreed to pay a $3.2 million fine to the Financial Industry Regulatory Authority (FINRA) to settle first-of-its-kind allegations that the firm violated customer protection rules in its fully paid securities lending program (FPLP). The violations included misrepresenting compensation details and exposing certain customers to unintended tax liabilities, FINRA announced Tuesday.
In its letter of acceptance, waiver, and consent, FINRA stated that Apex was censured and has been given six months to remediate compliance deficiencies within its securities lending program. The firm had already disbursed nearly $18 million in cash payments to affected customers. However, those payments—typically taxed at a higher rate than qualified dividends—potentially resulted in greater financial consequences for participants.
Misleading Disclosures and Compliance Failures
FINRA’s landmark enforcement action accuses Apex of failing to meet the requirements of Rule 4330, which mandates that firms borrowing customer securities must ensure the arrangement is suitable. The organization highlighted that Apex did not have reasonable grounds to believe its securities lending program was appropriate, especially for customers who received no loan fees for their participation.
