Robinhood fined $30 million for anti-money laundering violations

The New York State Department of Financial Services fined the cryptocurrency trading unit of online brokerage Robinhood $30 million for alleged violations of anti-money laundering and cybersecurity regulations, in the department’s first cryptocurrency enforcement action.

New York state’s financial regulator said on Aug. 2 that Robinhood failed to maintain or certify compliant cybersecurity and anti-money laundering programs. As part of the consent order, Robinhood will also be required to hire an independent consultant to evaluate its compliance with NYDFS regulations and its remediation efforts.

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NYDFS said it found significant failures through a supervisory examination and subsequent investigation of Robinhood. The failures, the regulator said, were the result of deficiencies in the company’s management and oversight of its compliance programs. These included failures to foster and maintain a culture of compliance and to allocate adequate resources to programs, particularly as the company grew rapidly, compounding the problems.

Robinhood, which said in its latest quarterly filing that it had about 15.9 million monthly active users at the end of March, first publicly disclosed the investigation and settlement with the NYDFS a year ago in filings filed with the Securities and Exchange Commission. The company initially expected a monetary penalty of at least $10 million and later increased it to $30 million.

NYDFS said Robinhood’s Bank Secrecy Act and anti-money laundering compliance program was understaffed and did not transition in a timely manner from a manual transaction control system appropriate for the size, volumes of transactions and company customer profiles. Robinhood’s cybersecurity program also failed to address the company’s operational risks, and its policies did not meet the regulator’s cybersecurity and virtual currency regulations, NYDFS said.

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Robinhood also violated certain consumer protection requirements by not having a dedicated phone number on its website to receive consumer complaints, NYDFS said.

“We have made significant progress in building industry-leading legal, compliance and cybersecurity programs, and we will continue to prioritize this work to better serve our clients,” Cheryl Crumpton, associate general counsel for litigation and regulatory enforcement, said Tuesday by Robinhood. “We’re proud to offer a more accessible and lower-cost platform to buy and sell crypto, and we’re excited to continue growing our business responsibly with new products and services that our customers want.”

The settlement with Robinhood was the first cryptocurrency industry enforcement action by the NYDFS, which given New York’s role as a financial center has an outsized role in financial regulation and enforcement. It also comes as its new superintendent, Adrienne A. Harris, seeks to provide more guidance for the crypto industry and expand the regulator’s team on virtual currency.

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“DFS will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of institutions,” Harris said in a statement.

The deal was the latest headache for the mobile investment company, which gained massive popularity during the Covid-19 pandemic. Robinhood’s monthly active users were down 25% in the first quarter from last year’s quarterly peak, while its revenue was down 47%. The company has shifted its focus from rapid growth to cost-cutting, laying off 9% of its workforce earlier this year.

Robinhood has also found itself on a collision course with regulators after SEC Chairman Gary Gensler in June outlined an overhaul of trading rules that could threaten part of its business model.

This article was first published by The Wall Street Journal, part of Dow Jones


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!