Today, August 2, 2022, the New York Department of Financial Services (NYDFS) announced a substantial penalty on "Robinhood’s cryptocurrency arm for alleged violations related to anti-money laundering, cybersecurity and consumer protection laws" [Wright, T. New York financial regulator fines Robinhood's crypto division $30M. (Accessed August 2, 2022)]. In a Press Release:
Superintendent of Financial Services Adrienne A. Harris announced today that Robinhood Crypto, LLC (“RHC”) will pay a $30 million penalty to New York State for significant failures in the areas of bank secrecy act/anti-money laundering (“BSA/AML”) obligations and cybersecurity that resulted in violations of the Department’s Virtual Currency Regulation (23 NYCRR Part 200), Money Transmitter Regulation (3 NYCRR Part 417), Transaction Monitoring Regulation (23 NYCRR Part 504), and Cybersecurity Regulation (23 NYCRR Part 500). In addition to the penalty, RHC will also be required, as part of the settlement, to retain an independent consultant that will perform a comprehensive evaluation of RHC’s compliance with the Department’s Regulations and RHC’s remediation efforts with respect to the identified deficiencies and violations.
[NYDFS. DFS SUPERINTENDENT HARRIS ANNOUNCES $30 MILLION PENALTY ON ROBINHOOD CRYPTO FOR SIGNIFICANT ANTI-MONEY LAUNDERING, CYBERSECURITY & CONSUMER PROTECTION VIOLATIONS. (Accessed August 2, 2022)].
NYDFS said it found significant failures through a supervisory exam and through a subsequent enforcement investigation of Robinhood. The failures, the regulator said, resulted from shortcomings in the company’s management and oversight of its compliance programs. These include failures to foster and maintain a culture of compliance and to allocate adequate resources to the programs, particularly as the company grew quickly, which exacerbated the issues.
[Sun, M. Robinhood’s Crypto Unit Fined $30 Million by New York’s Top Financial Regulator. (Accessed August 2, 2022)].
In the Press Release, Superintendent Harris noted: "As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance—a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations." [Denton, J. Robinhood’s Crypto Arm Fined $30 Million Over Anti-Money Laundering Failures. (Accessed August 2, 2022)].
According to the NYDFS’s consent order, the department conducted an examination of Robinhood Crypto between January and September 2019, alleging that it had 'found serious deficiencies in RHC’s compliance function across multiple areas.' The NYDFS then began an enforcement investigation, finding that Robinhood’s crypto arm violated aspects of the Bank Secrecy Act, or BSA, and Anti-Money Laundering, or AML, regulations. Among these violations were allegations Robinhood Crypto did not transition to an adequately sized transaction monitoring system o 'devote sufficient resources to adequately address risks.' In addition, the financial regulator alleged Robinhood 'failed to maintain on its website a telephone number for the receipt of customer complaints' as part of a supervisory agreement.
[Wright, supra]. A copy of this 'Consent Order' may be accessed by clicking here.
'We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers,' Robinhood’s Associate General Counsel of Litigation and Regulatory Enforcement Cheryl Crumpton said in a statement Tuesday. 'We remain proud to offer a more accessible, lower-cost platform to buy and sell crypto and are excited to continue to grow our business in a responsible manner with new products and services that our customers want.'
[Sun. supra].
Nonetheless, "[t]he enforcement action by the New York State Department of Financial Services underscores the continued regulatory scrutiny Robinhood faces, even as it pushes a message to investors that it’s taking a “safety first” stance toward digital tokens" [Massa, A. Robinhood Crypto Unit Fined $30 Million by New York Regulator. (Accessed August 2, 2022).
It should be noted that this is not the first 'trouble' faced by Robinhood. "In 2020, the SEC charged Robinhood $65 million for allegedly misleading customers about how it makes money. Last June, the Financial Industry Regulatory Authority (FINRA) fined Robinhood nearly $70 million to settle claims over its failure to protect customers on the trading platform. Around the same time, the US Department of Justice seized Robinhood CEO Vlad Tenev’s phone during its investigation into how Robinhood handled the GameStop stock frenzy last year" [Roth, E. Robinhood Crypto fined $30 million for alleged regulatory violations in NY. (Accessed August 2, 2022)].
"Robinhood, which reports second-quarter earnings after the closing bell on Wednesday, had previously disclosed the investigation and settlement in public filings, and said in a statement to Barron’s that the company was pleased it was now final" [Denton, supra]. As of this writing (August 2, 2022 @ 15:47 ET) Robinhood stock (HOOD) was trading at $9.22 up 1.99% over the past 24 hours.
