Regulatory Scrutiny Leads to Fines and Restitution Payments
Robinhood has agreed to pay $29.75 million to settle multiple investigations by the Financial Industry Regulatory Authority (FINRA) regarding its supervision and compliance failures.
According to FINRA’s March 7 announcement, the settlement includes a $26 million civil fine and $3.75 million in restitution to affected customers. The regulator found that Robinhood failed to address red flags related to anti-money laundering (AML), trade supervision, and customer account security.
Key Findings in FINRA’s Investigation
FINRA’s investigation uncovered several compliance issues between March 2020 and January 2021, a period that coincided with Robinhood’s controversial trading restrictions on meme stocks like GameStop (GME) and AMC Entertainment Holdings (AMC).
Key violations include:
- Inadequate supervision of the clearing system: Robinhood did not properly monitor its clearing operations, leading to significant processing delays.
- Failure to detect market manipulation: The platform failed to identify or report manipulative trades and suspicious money movements.
- Account security lapses: Robinhood did not detect or prevent third-party hackers from taking over customer accounts.
- Inadequate AML compliance: The company did not implement effective anti-money laundering protocols and even opened thousands of accounts without properly verifying identities.
- Misleading social media promotions: Robinhood failed to monitor social media promotions, some of which contained misleading or unbalanced investment claims.
The $3.75 million restitution penalty was linked to Robinhood’s “collaring” of market orders, which involved converting them into limit orders without properly informing customers.
Robinhood’s History of Regulatory Fines
This latest settlement comes just two months after Robinhood Financial and Robinhood Securities paid $45 million to resolve a separate U.S. Securities and Exchange Commission (SEC) probe into violations of more than 10 securities laws. In that case, Robinhood admitted to failing to maintain and preserve electronic communications from customers between 2020 and 2021.
Despite regulatory setbacks, Robinhood reported strong financial performance in the fourth quarter of 2024, posting a record $916 million net income and surpassing $1 billion in revenue.
- Crypto-related revenue hit $358 million, contributing significantly to $672 million in transaction-based revenues, a 200% year-over-year increase.
- Crypto trading volumes surged 450% year-over-year to $71 billion.
As Robinhood continues to face regulatory scrutiny, its growing role in the crypto sector could lead to even more oversight from financial regulators.
