FINRA has directed Robinhood Financial to pay $3.75 million in restitution to affected customers and imposed $26 million in fines on Robinhood Financial and Robinhood Securities for violations related to anti-money laundering, supervisory failures, and inadequate disclosures.
The enforcement action highlights deficiencies in the firm’s oversight and risk management practices.
Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA, commented, “In recent years, the brokerage industry has continued to evolve and develop innovative services and technologies that have allowed millions of new investors to access the markets. Today’s action reminds FINRA members that compliance with core regulatory obligations remains critical to safeguarding and serving all investors.”
“Collaring” Market Orders, AML And Supervisory Failures
Robinhood Financial was found to have misrepresented its practice of “collaring” market orders by converting them into limit orders. This resulted in customers unknowingly having orders canceled, subsequently re-entering trades, and often receiving inferior prices. To address this, Robinhood Financial has agreed to pay restitution to impacted customers.
Regulators also determined that both Robinhood Financial and Robinhood Securities failed to establish reasonable anti-money laundering programs. These deficiencies prevented the firms from detecting and reporting suspicious activities, including market manipulation, fraudulent transactions, and instances of account takeovers by third-party hackers. Robinhood Financial’s failure to implement a proper customer identification program led to thousands of accounts being opened without adequate verification.
Robinhood Securities was cited for inadequate oversight of its clearing technology system, which supports trade processing for Robinhood Financial. The firm failed to address warning signs related to delays in trade processing, particularly during a surge in trading volume and volatility in January 2021. These delays impacted its ability to meet regulatory obligations.
Additionally, FINRA found that Robinhood Financial did not properly supervise or retain records of promotional content posted by paid social media influencers. Some of these promotions contained misleading or promissory language that did not meet regulatory standards. Robinhood Securities was also penalized for failing to comply with reporting requirements related to securities trading and regulatory audit trails.
FINRA determined that Robinhood Financial and Robinhood Securities failed to implement adequate supervisory systems to meet regulatory standards, including not addressing red flags of misconduct in multiple areas. Some of the violations identified in FINRA’s investigation were self-reported by the firms.
As part of the settlement, Robinhood Financial and Robinhood Securities have accepted FINRA’s findings without admitting or denying the charges. The firms have also agreed to certify that they have remediated the compliance failures identified in the enforcement action.
