Thomas Daniels
In order to resolve several regulatory investigations by the Financial Industry Regulatory Authority (FINRA) for noncompliance, including anti-money laundering (AML) infractions and shortcomings in supervisory and disclosure procedures, Robinhood has consented to pay $29.75 million.
Regulatory Errors and Settlement Disintegration
On March 7, FINRA announced the settlement, which includes $3.75 million in restitution to impacted clients and a $26 million civil punishment. The regulator discovered that Robinhood violated AML procedures, trade monitoring, and account verification because it neglected to address warning signs of possible wrongdoing.
Due to Robinhood’s inadequate oversight of its clearing system, processing delays occurred during periods of high trading activity between March 2020 and January 2021. During this time, GameStop (GME) and AMC Entertainment Holdings (AMC) were subject to restrictions on their meme stock.
Furthermore, FINRA found that Robinhood Financial and Robinhood Securities failed to identify, look into, or disclose suspicious transactions, such as fraudulent money transfers, manipulative trades, and account takeovers by outside hackers.
AML rules were further broken when it was discovered that Robinhood had opened thousands of accounts without adequately confirming the identities of its clients. Additionally, the business allowed deceptive promotional content from paid influencers on social media by failing to monitor and retain social media communications.
Prior Regulatory Settlements and Restitution
The $3.75 million restitution is due to Robinhood Financial’s practice of “collaring,” which is the process of turning market orders into limit orders, and its inability to give clients proper information.
Robinhood agreed with the regulator’s conclusions but neither acknowledged nor refuted FINRA’s accusations. This settlement comes after Robinhood entities agreed to pay $45 million to the U.S. Securities and Exchange Commission (SEC) in January 2024 for admitting to breaking more than ten securities regulations, including not keeping electronic correspondence up to date.
Good Q4 Results Despite Regulatory Obstacles
With a $916 million net income and over $1 billion in revenue, Robinhood reported historic Q4 2024 financial results in spite of regulatory scrutiny. Notably, cryptocurrency trading volumes increased 450% to $71 billion, while earnings increased 200% to $358 million.
Strong financial results highlight Robinhood’s tenacity in the cutthroat online trading market as it negotiates these regulatory obstacles.
