Robinhood Fined $30M for Violating AML Regulations

Robinhood Fined $30M for Violating AML Regulations

The New York State Department of Financial Services (NYDFS) imposed a $30 million penalty to Robinhood for failing to adhere to cybersecurity and anti-money-laundering regulations.
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Robinhood’s crypto trading business has been fined $30 million by the New York state regulator, citing violations of cybersecurity and anti-money-laundering regulations, according to the Wall Street Journal. The move comes as Robinhood did not maintain and certify anti-money-laundering and cybersecurity programs that were in line with regulations, said the New York State Department of Financial Services (NYDFS) in a statement.

Major Flaws in Robinhood’s Compliance Programs

New York’s top financial regulator fined the crypto trading division of financial services company Robinhood Markets $30 million for breaching anti-money-laundering and cybersecurity regulations. Moreover, Robinhood must also collaborate with an independent consultant who will ensure its compliance with the state regulations.

Following its investigation, the NYDFS spotted significant shortcomings in Robinhood’s management of its compliance programs. One of these shortcomings includes Robinhood’s unsuccessful attempts to develop and maintain a compliance culture and invest proper resources into the programs given the company’s rapid growth.

Robinhood, which offers trading services for crypto assets and stocks, disclosed the investigation and settlement with New York’s regulator last year in its filings with the SEC. The initial settlement required Robinhood to pay a $10 million fine, which later rose to $30 million.

According to NYDFS, Robinhood’s cybersecurity program did not eliminate the company’s operational risks and its policies failed to comply with cybersecurity and virtual currency regulations. Also, the financial services company failed to adhere to specific consumer-protection regulations as it did not provide a dedicated phone number on its website where consumers can seek customer support.

“We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers.”

said Robinhood’s Associate General Counsel of Litigation and Regulatory Enforcement Cheryl Crumpton in a statement.

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$100M in Fines in Just One Year

The new fine comes just a year after Robinhood paid a historical penalty of $70 million to the ​​Financial Industry Regulatory Authority (FINRA). FINRA cited several reasons behind this record-breaking penalty, including providing false and misleading information to customers, among other things.

The $30 million penalty marks the latest headwind for the embattled online trading company, which experienced a boom during the coronavirus pandemic. Shortly after the Covid-19 outbreak, Robinhood faced class action lawsuits after the platform was down for two days, one of which happened to be a record-setting day for the Dow Jones Industrial Average.

The company’s monthly active userbase shrank by 25% in the first quarter year-over-year, while its revenue was down 47%. This forced Robinhood to make strategic changes including laying off 9% of its staff earlier this year.

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