The Financial Industry Regulatory Authority announced penalties against two units of Robinhood Markets, saying it had found numerous rule violations.
FINRA ordered Robinhood Financial to pay back $3.75 million to its customers, and fined Robinhood Financial and Robinhood Securities $26 million for infractions that included failing to respond to red flags of potential misconduct.
In its news release, FINRA detailed the findings that led to the penalties:
-Robinhood Financial gave customers inaccurate or incomplete disclosures regarding its practice of “collaring” market orders by converting them to limit orders. Robinhood Financial agreed to pay restitution of $3.75 million to certain customers whose market orders were collared and canceled, and who then re-entered their orders and received executions at an inferior price.
-Robinhood Financial and Robinhood Securities failed to establish and implement reasonable anti-money laundering programs. As a result, the firms failed to detect, investigate or report suspicious activity, including manipulative trading, suspicious money movements and instances where customers’ accounts were taken over by third-party hackers. Robinhood Financial also failed to establish a reasonable customer identification program, resulting in the firm opening thousands of accounts when it had not reasonably verified the customer’s identity.
-Robinhood Securities failed to reasonably supervise its clearing technology system, which was used to clear trades for Robinhood Financial. The firm also failed to reasonably respond to several red flags of processing delays due to increased demand on the clearing system. FINRA said the system experienced severe latency in January 2021 due to a surge in trading volume and volatility, which in turn impacted Robinhood Securities’ clearing operations and its ability to satisfy certain regulatory obligations.
-Robinhood Financial failed to reasonably supervise and retain social media communications promoting the firm that were posted by paid social media influencers. Some of the posts included statements that were promissory, or not fair and balanced, and thus misleading to investors.
-Robinhood Securities failed to comply with numerous aspects of the firm’s reporting obligations for securities trading information, FINRA trade reporting facilities and the Consolidated Audit Trail.
FINRA found that in these areas and others described in the letter of acceptance, waiver and consent (AWC), Robinhood Financial and Robinhood Securities had not established a reasonable supervisory system to comply with FINRA rule obligations, including in some areas failing to reasonably respond to red flags of potential misconduct. Some of the areas addressed in the AWC were self-reported by the firms.
“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,” said Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA. “Today’s action reminds FINRA members that compliance with core regulatory obligations remains critical to safeguarding and serving all investors.”
The firms did not admit or deny FINRA’s findings but consented to their entry and agreed to certify that they remediated the issues that had been identified.
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