A prominent US-based online trading platform, Robinhood, will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors,” as announced by the California Department of Financial Protection and Innovation (DFPI).
The California DFPI’s announcement comes after the state participated in a multi-state settlement involving Robinhood Financial LLC.
The settlement emanates from an investigation initiated by North American Securities Administrators Association (NASAA). The said investigation was spearheaded by Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas state securities regulators.
As per Andrew Hartnett, President, NASAA, the investigation represents the states and its “Main Street” investors” in the best possible way.
Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors. Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.
Clothilde Hewlett, Commissioner, DFPI, said online trading platforms offer convenient investment options, but basic investor and consumer protections are a must.
Online trading platforms provide Americans with convenient options to invest. But platforms such as Robinhood must comply with common-sense protections for investors and consumers as required by law.
Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms.
The investigation relates to the events that ensued following Robinhood’s failures in March 2020. It was around that time that numerous investors were dependent on the Robinhood platform for their trades.
Apart from that, per the DFPI, even before March 2021, shortcomings were present in the options and margin accounts review and approval process at Robinhood. Its monitoring and reporting tools, and inefficient customer service and escalation protocols left Robinhood users’ trades stranded whilst some stocks’ value kept on plummeting.
In the said order, these violations are set out by the DFPI:
- Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads.
- Failure to have a reasonably designed customer identification program.
- Failure to supervise technology critical to providing customers with core broker-dealer services.
- Failure to have a reasonably designed system for dealing with customer inquiries.
- Failure to exercise due diligence before approving certain option accounts.
- Failure to report all customer complaints to the Financial Industry Regulatory Authority (FINRA) and state securities regulators, as may be required.
The DFPI clarifies that “no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation.”
