- Robinhood settles $29.75 million with FINRA over compliance and AML violations.
- FINRA found Robinhood failed to supervise trading, AML compliance, and account security.
- The settlement includes $26 million in fines and $3.75 million in customer restitution.
Robinhood has reached a $29.75 million settlement with the Financial Industry Regulatory Authority (FINRA) over multiple compliance and supervision failures. According to a March 7 announcement, the settlement includes a $26 million civil fine and $3.75 million in customer restitution payments related to various regulatory violations.
FINRA’s investigation determined that Robinhood failed to “respond to red flags of potential misconduct,” leading to Anti-Money Laundering violations and supervisory and disclosure issues across its operations. The settlement addresses problems identified during a critical period of the company’s growth, particularly between March 2020 and January 2021. This was when retail trading activity surged dramatically.
This timeframe coincides with Robinhood’s controversial decision to restrict trading in “meme stocks” like GameStop (GME) and AMC Entertainment Holdings (AMC). FINRA found that despite clear warning signs of processing delays in its clearing system during this high-demand period, Robinhood Financial failed to implement reasonable supervision measures.
The investigation revealed multiple compliance failures related to account security and monitoring. According to FINRA, both Robinhood Financial and Robinhood Securities showed systemic failures to detect, investigate, or report manipulative trading activities, suspicious money movements, and instances where third-party hackers compromised customer accounts.
FINRA also determined that Robinhood Financial opened “thousands of accounts” without reasonably verifying customer identities. These oversights led regulators to conclude that Robinhood had failed to establish and implement reasonable Anti-Money Laundering programs as needed by financial regulations.
The regulatory body cited additional concerns regarding Robinhood’s social media practices. They noted that the company failed to “reasonably supervise and retain” communications from paid social media influencers it had used for promotion. “Some of these communications included statements that were promissory or not fair and balanced, and thus misleading to investors,” FINRA stated in its investigation findings.
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The $3.75 million restitution component of the settlement comes from Robinhood Financial providing customers with inaccurate or incomplete disclosures through a practice called “collaring.” The process is where market orders were converted to limit orders without proper notification to users. This practice affected execution quality and pricing for customer trades.
Both Robinhood Financial and Robinhood Securities have consented to FINRA’s findings without admitting or denying the charges. The company has agreed to implement remedial measures addressing the issues identified in the investigation.
This latest settlement follows closely on the heels of another regulatory action against Robinhood. Just two months prior, on January 13, two Robinhood entities reached a $45 million settlement with the U.S. securities regulator. This was after an investigation found violations of more than 10 securities law provisions.
