SEC fines Wahed Invest $300,000 over Shariah compliance issues


In order to ensure that all returns are halal, Wahed has a full-time ethics review committee which is supposed to undertake “a rigorous selection process and produce annual smudging reports”.

The Securities and Exchange Commission has accused New York-based robo-advisor Wahed Invest, LLC of making misleading statements and breaching its fiduciary duty, as well as compliance failures related to its robo-advisory business. sharia.

The complaint alleges that Wahed Invest announced the existence of its own funds when such funds did not existand also promised investors that he periodically rebalanced their advisory accounts, but did not.

The misrepresentations lasted from September 2018 to July 2019, the agency claims, adding that when Wahed Invest finally launched a proprietary ETF in July 2019, it used its clients’ advisory assets to seed the ETF without first disclosing any conflicts of interest to clients.

The SEC also alleges that the investment platform did not adopt or implement written policies and procedures outlining how it would ensure ongoing Shariah compliance, despite presenting itself as Shariah-compliant. Islamic law or Sharia. Its Islam-focused marketing included emphasizing the importance of its income purification process.

“Robo-advisors, like other advisers, must ensure that their marketing materials are not misleading and that conflicts are disclosed to investors. Registered investment advisers like Wahed Invest must also adopt and implement reasonably designed written policies and procedures to prevent the adviser from deviating from its claimed investment process,” said Adam S. Aderton, Co-Head of the Asset Management Unit of the SEC’s Enforcement Division.

Wahed Invest settled with the SEC without admitting or denying the findings. The investment platform agreed to a cease and desist order, pay a $300,000 fine and retain the services of an independent compliance consultant, among other commitments.

Wahed recently obtained a license from the Financial Sector Conduct Authority (FSCA) in South Africa in a “huge achievement” for the halal financial investment platform.

The next step will be Wahed to launch its app locally in this jurisdiction, a key market for fintech expansion in Africa due to the severe economic inequalities that still exist in large parts of the continent.

Wahed intends to help emerging investors make informed decisions about their money by emphasizing transparency, minimal transaction fees, and financial inclusion.

Wahed entered the UK with a license from the Financial Conduct Authority in 2018, arguing that the majority of British Muslims surveyed feel excluded from mainstream financial services due to their religious beliefs.

The halal investment platform fills this gap by providing access to products not traditionally available to retail investors, such as Sukuk, an Islamic financial certificate, similar to a bond in Western finance, which complies in Sharia.

The platform found that 84% of its users are new or unfamiliar with investing. Wahed automatically suggests a portfolio for each user based on their risk profile, taking into account liquidity needs, investment goals and other criteria.

In order to ensure that all returns are halal, Wahed has a full-time ethics review committee which is supposed to undertake “a rigorous selection process and produce annual smudging reports”.

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