Last week, the New York State Department of Financial Services (“NYDFS”) fined Robinhood’s crypto trading unit $30 million. The crypto retail trading platform failed to implement controls reasonably designed to prevent cybersecurity and money-laundering violations. In addition to the penalty, Robinhood must retain an independent consultant to perform an evaluation of its compliance with the NYDFS regulations, and the required remediation efforts.
The NYDFS concluded that Robinhood’s failures arose from shortcomings in the management and oversight of its compliance programs. These included failing to foster and maintain a compliance culture, and allocate adequate resources to compliance. In particular, the NYDFS found that Robinhood didn’t adequately staff its BSA/AML program, failed to timely transition from a manual transaction monitoring system to an automated system more appropriate to its size, customer profiles, and transaction volumes, and didn’t devote sufficient resources to address BSA/AML risks.
The current fine is the latest in several that plagued the company over the past years. In 2021, the company was under investigation by the NY State regulator regarding its crypto trading unit and settled for a $10 million fine. The Financial Industry Regulatory Authority (FINRA) also fined the company $70 million in March 2020 for providing false and misleading information, and the harm suffered by customers from systems outages. Further, the SEC fined Robinhood $65 million in 2020 for allegedly misleading customers about how it was paid by Wall Street firms for passing along customer trades.
Why this is Important. The settlement with Robinhood is the enforcement agency’s first action related to crypto. The action comes amid a difficult year for crypto, which has seen both steep losses that sent some firms into bankruptcy, along with a series of large-scale hacks that resulted in billions of dollars in losses by customers and investors. The settlement is the latest headache for Robinhood, which achieved mass popularity during the Covid-19 pandemic. The company has also found itself on a potential collision course with regulators after SEC Chairman Gary Gensler outlined a revamp of trading rules that could threaten part of its business model.