Robinhood, a US stock trading application with over XNUMX million users, has been fined by the New York State Department of Financial Services (NYDFS) for alleged violations of anti-money laundering, cyber security and consumer protection laws.
The $ 30 million fine specifically applies to Robinhood's cryptocurrency trading unit and is the result of "serious shortcomings" within its "compliance function in multiple areas".
Shortcomings in cyber security
The announcement was made by NYDFS Superintendent Adrienne Harris, who confirmed that Robinhood Crypto will pay a $ 30 million fine to the state for failing to maintain adequate cybersecurity measures and for violating some aspects of the Bank Secrecy Act (BSA ), as well as anti-money laundering obligations (AML).
According to the NYDFS consensus order, a Robinhood Crypto review conducted between January and September 2019 found a violation of the department's regulations regarding virtual currency, money transmitters, transaction monitoring and cybersecurity.
As a result, the company's cryptocurrency unit will need to hire an independent consultant to assess the company's compliance and remediation efforts.
Another concern is that the company did not provide a dedicated phone number on its website that would allow customers to file complaints as part of a supervisory arrangement. Additionally, the NYDFS argues that Robinhood Crypto's anti-money laundering program was "understaffed" and relied on a manual system for tracking transactions, even as the user base has grown exponentially.
In addition to critical shortcomings in its cybersecurity program, regulators argue that the lack of management and oversight, coupled with the "failure to promote and maintain an adequate culture of compliance," has led to a number of breaches that justified a heavy fine.
Additionally, Robinhood announced the layoff of nearly a quarter of its staff due to economic conditions and the recent cryptocurrency market crash. The news comes as the company posted a 44% decline in net revenue in the second quarter.
The controversy over Robinhood
In June last year, the US Financial Industry Regulatory Authority fined Robinhood $ 57 million and ordered it to pay $ 12,6 million in compensation, plus interest, to thousands of customers who have "suffered significant damage ”due to business practices.
This is the largest fine that the supervisor has ever imposed on a company. Robinhood has also been accused of showing "systemic supervisory deficiencies" as of September 2016.
Earlier this year, a U.S. federal court dismissed a lawsuit accusing Robinhood Markets Inc of violating state laws by restricting the trading of meme securities - a move that retail traders say would have resulted in losses. for billions.
Chief Judge Cecilia Altonaga concluded that the retail investors they cannot file claims for negligence and breach of fiduciary duty to the company, citing Robinhood's customer agreement that allows it to restrict trading.
