The New York State Department of Financial Services (NYDFS) has fined stock and cryptocurrency trading platform Robinhood $30 million, allegedly for violating multiple anti-money laundering, cybersecurity and consumer protection regulations.
Specifically, the $30 million fine, which the company expected since last year, is imposed on the Robinhood Crypto arm of the online brokerage. The financial regulator concluded that Robinhood had failed to adhere to its obligations under the bank secrecy act/anti-money laundering (BSA/AML) program.
NYDFS said the company failed to hire adequate staff or sufficiently train them to cater to its anti-money laundering and cybersecurity requirements. The penalty on Robinhood is also for failing to transition from a manual transaction monitoring system, given Robinhood’s current needs and transaction volumes, which are much larger than earlier.
â€œDespite these weaknesses in its transaction monitoring and cybersecurity programs, RHC improperly certified compliance with the Department’s Transaction Monitoring Regulation and Cybersecurity Regulation,â€ NYDFS said.
Robinhood was found to have violated the New York watchdog’s cybersecurity and virtual currency regulations. Robinhood also didn’t address certain consumer protection requirements that mandate companies to maintain a dedicated phone number on its website for consumer complaints.
â€œAs its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of complianceâ€”a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,â€ said Adrienne Harris, superintendent of NYDFS.
â€œAll virtual currency companies licensed in New York State are subject to the same anti-money laundering, consumer protection, and cybersecurity regulations as traditional financial services companies.â€
This is the third time Robinhood has been penalized in less than two years. In December 2020, the company was fined $65 million byOpens a new window the Security and Exchange Commission over misleading customers and $70 million later in June 2021Opens a new window by the Financial Industry Regulatory Authority (FINRA) for outages and for misleading customers.
Robinhood and the NYDFS have already settled upon the latest multi-million USD fine. â€œRHC and the NYDFS have reached a settlement in principle with respect to these allegations, subject to final documentation, in connection with which, among other things, RHC expects to pay a monetary penalty of $30 million and engage a monitor,â€ the company revealed in an SEC filing dating July 19, 2021.
Besides paying $30 million, Robinhood, which posted earnings of $318 million in Q2 2022Opens a new window (+6% YoY) and $1.82 billion in 2021Opens a new window (+89% YoY), will need to retain an independent consultant who will evaluate the company’s compliance with NYDFS regulations.
This week, Robinhood was the latest tech-driven company to lay off employees. In a blog postOpens a new window , Robinhood CEO Vlad Tenev said the company is parting ways with 23% or approximately 900 employees. This is in addition to the company firing 9% of its staff earlier in 2022.
Tenev said employees from all functions will be impacted, but â€œthe changes are particularly concentrated in our operations, marketing, and program management functions.â€ The CEO cited deterioration of the macro environment, 40-year high inflation, and crash in cryptocurrency, which reduced customer trading activity and assets under custody.
Robinhood’s Q2 2022 revenue is up 6% YoY but is down by 44% from Q1 2022.