FINRA fines Ally Invest $850k over recordkeeping failures

Ally Invest, a robo-advisory and online brokerage firm based in Charlotte, North Carolina, has agreed to pay an $850,000 fine and accept a censure from FINRA after the regulator found the firm failed to preserve tens of millions of business-related electronic communications over a six-year period.

The settlement, announced this week, follows previous warnings from FINRA about similar deficiencies in Ally Invest’s supervisory practices and places the firm among the most heavily penalized robo-advisors for compliance lapses.

According to the settlement agreement, the violations occurred between September 2016 and November 2022. During this time, FINRA said Ally Invest failed to preserve 22.6 million electronic messages with customers concerning trade executions, fund transfers, and other account activity. The firm also lost an unknown quantity of internal and external communications from approximately 90 group mailboxes.

The agreement attributes these lapses to “separate coding errors and other technical failures in three systems that caused the communications to be lost.” It described how a copying feature designed to replicate certain communications to a dedicated mailbox was lost during a transition to a new records-retention system, which resulted in communications no longer being captured.

As a result, Ally Invest was unable to fully respond to 39 regulatory inquiries from the Securities and Exchange Commission and FINRA during the period in question.

FINRA also determined that Ally Invest’s written supervisory procedures were not reasonably designed to ensure the review of business-related electronic communications. During the same six-year period, it said the firm was obligated to review incoming and outbound communications across roughly 120 group mailboxes, as well as a software platform used for customer communications. 

"Ally’s procedures did not require the group mailboxes and all user accounts of the customer-service software to be connected to the firm’s system for selecting communications for review, nor did the firm’s procedures describe how to verify that the mailboxes and user accounts were connected to the review system," FINRA said.

Consequently, the firm failed to conduct timely reviews of at least 521,000 such communications from about 30 group mailboxes and the customer-service software platform, according to FINRA.

In determining the penalty, FINRA acknowledged Ally Invest’s “extraordinary cooperation” in resolving the matter. The firm identified and self-reported each of the issues before they were detected by regulators, promptly corrected the system failures, and took additional steps to evaluate its recordkeeping procedures and systems more broadly.

“Ally substantially assisted FINRA’s investigation by proactively identifying the cause, scope, and impact of each issue and by providing detailed factual summaries,” the agreement reads.

The $850,000 penalty places Ally Invest among the most heavily fined robo-advisors for recordkeeping and supervisory failures.

In 2021, Robinhood agreed to pay a record $70 million in fines and restitution for allegedly harming millions of customers due to false and misleading information, system outages, and improperly approving trade options. This past March, Robinhood Financial and Robinhood Securities were fined a combined $26 million for a range of violations, including anti-money laundering, supervisory, and disclosure failures, and ordered to pay $3.75 million in restitution to customers.

In 2018, Betterment was fined $400,000 for violations related to the Customer Protection Rule and improper record-keeping. M1 Finance was fined $850,000 last year in a landmark action involving violations in its social media influencer program.