Robinhood Financial and Robinhood Securities have agreed to pay $29.75 million to resolve multiple investigations by the Financial Industry Regulatory Authority (FINRA). This settlement includes a $26 million fine and $3.75 million in restitution to customers.
Robinhood will pay a $26 million fine and provide $3.75 million in restitution. FINRA cited Robinhood for several compliance failures, including inadequate anti-money laundering measures, insufficient customer identification processes, and improper supervision of social media communications.
Customers were misled about the “collaring” of market orders, leading to financial losses. Robinhood Securities did not adequately supervise its clearing technology, causing significant delays during high trading volumes in January 2021. Robinhood consented to the findings without admitting or denying the charges and has committed to fixing the identified issues.
This settlement follows a previous $45 million fine Robinhood paid to the U.S. Securities and Exchange Commission for other regulatory violations. Founded in 2013, Robinhood is known for its commission-free trading platform and cryptocurrency trading.
The background of this case dates back to several key regulatory lapses identified by FINRA. Robinhood Financial provided customers with inaccurate or incomplete disclosures regarding its practice of “collaring” market orders by converting them to limit orders.
This led to some trades being canceled and reentered at inferior prices, resulting in financial losses for customers. Additionally, Robinhood Financial and Robinhood Securities failed to establish and implement reasonable anti-money laundering programs, which caused the firms to miss suspicious activities, including manipulative trading and unauthorized account access1. The firms also failed to establish a reasonable customer identification program, resulting in the opening of thousands of accounts without proper identity verification.
Robinhood Securities faced scrutiny for its inadequate supervision of its clearing technology system, which experienced severe latency during a surge in trading volume and volatility in January 2021. This impacted the firm’s ability to meet regulatory obligations and caused significant delays in processing trades1. Furthermore, Robinhood Financial failed to reasonably supervise and retain social media communications promoting the firm, leading to misleading statements being made by paid social media influencers.
Erica Crosland, Robinhood’s head of regulatory enforcement, expressed satisfaction with the settlement, emphasizing the company’s dedication to compliance.
Shogun Lin
