Fidelity Brokerage Services LLC has agreed to pay a fine of $900,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From May 2017 through April 2022, Fidelity did not exercise reasonable due diligence before approving customers to trade options. During this period, the firm used an automated, electronic system to screen customers’ online applications to trade options, after which a principal at the firm reviewed and then approved or disapproved customer accounts for options trading.

Flaws in the firm’s system for reviewing options trading applications resulted in customers being approved for options trading who did not satisfy the firm’s eligibility criteria or who submitted successive applications with materially different information concerning their finances and/or investment experience that raised red flags that the level of options trading the customer sought was inappropriate for them.

As a result, the firm violated FINRA Rules 3110, 2360, and 2010.

During the relevant period, Fidelity required that all customers seeking approval to trade options have at least one year of investment experience and Fidelity’s policies only considered experience after a customer was 18 years old. As such, any customer under the age of 19 who applied for options trading could not have attained the one year of investment experience that Fidelity required for its customers to trade options.

Nonetheless, prior to February 2021, Fidelity’s automated system promoted applications for batch review by a principal based on customers’ representations that they had at least one year of investment experience—even if the customers were younger than 19 years old.

In addition, prior to April 2022, Fidelity’s automated system did not consider customers’ prior options applications to determine if they contained materially different information from what the customer recently provided.

Fidelity’s process for principal review of options applications was also flawed. Principal reviewers were not required to consider if a customer had submitted multiple applications. Fidelity’s system also did not require comparison of the information provided by a customer on his or her most recent options application with what the customer had previously represented to the firm.

On its own initiative in February 2021, and continuing through April 2022, Fidelity made numerous enhancements to its system for approving customers for options trading, including, among others, implementing an automated age check to its online application screening process to ensure that a customer’s investment experience is consistent with his or her age, limiting how often customers can submit applications for options trading authority in a given time period, requiring and reminding customers to certify that information submitted on an options applications is accurate, and enhancing its verification processes for customers who make material changes to their financial or investment experience in a given time period.

On top of the fine, the firm consented to a censure.