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Robinhood Crypto Unit Fined in New York for Violating Money Laundering Rules

  • The USD 30 million penalty was imposed by the New York financial regulator in its first enforcement action on cryptocurrencies.
  • According to the New York State Department of Financial Services, Robinhood failed to comply with regulations to prevent money laundering and ensure cyber security.
  • The broker claims that it has made great progress in complying with the established regulations.

The New York State Department of Financial Services (NYDFS) on Tuesday accused the crypto unit of popular US online broker Robinhood Markets of violating anti-money laundering and cybersecurity regulations, imposing a fine of 30 million dollars.

This is the first digital asset enforcement action from the New York financial regulator. According to the department’s resolution, Robinhood Crypto LLC failed to comply with its commitment to certify cyber security programs and anti-money laundering regulations.

Going forward, Robinhood will have to retain an independent consultant to assess its compliance with the regulations set forth by the NYDFS, as well as its remediation commitments.

Compliance Assessment Results

The regulator reported finding significant flaws in Robinhood’s administrative procedures, The Wall Street Journal reported. The agency said it has conducted a supervisory review and investigation of subsequent compliance programs on the firm.

According to NYDFS, failures identified include failing to foster and maintain a culture of compliance. The company is failing to allocate the necessary resources for the programs and due to its rapid growth, these problems have also increased.

Robinhood initially expected a fine of around $10 million, but the figure was later increased to $30 million. The company disclosed the investigation and subsequent settlement with the regulator a year ago, during a filing with the US Securities and Exchange Commission (SEC).

In March, during the presentation of its results, the company revealed that it had reached 15.9 million monthly active users.

Failure to Comply with Consumer Protection Requirements

NYDFS determined that Robinhood’s Bank Secrecy Act and money laundering prevention program were understaffed. This prevented the proper adjustment of the manual transaction monitoring system to an automated one, more adapted to the volume of operations and the profile of its clients.

The New York regulator concluded in its compliance assessment that Robinhood’s cybersecurity program has several policy flaws. It does not address the operational risks of the company and does not comply with the regulations on cybersecurity and cryptocurrencies of the regulator.

According to NYDFS, the broker also failed to comply with consumer protection requirements. It explained that the platform does not have a telephone number that serves to receive complaints or complaints from users.

Robinhood: We’ve Made Significant Progress

But Robinhood's Associate General Counsel for Litigation and Compliance, Cheryl Crumpton, said in a statement that the company has "made significant progress building industry-leading legal, compliance, and cybersecurity programs."
She added that the company “will continue to prioritize this work to best serve our customers” and indicated that Robinhood is a "more accessible, lower-cost platform to buy and sell crypto," so they will continue to grow the "business in a responsible manner with new products and services that our customers want.”
New NYDFS Superintendent Adrienne A. Harris said in a separate statement that the agency "will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of the institutions.”

On the Flipside

  • Having achieved rapid growth during the covid-19 pandemic, the platform’s number of monthly active users fell 25% in the 1st Qtr. and its revenue fell 47%.

Like other companies in the financial sector, Robinhood is cutting back on its operating costs. At the beginning of the year it laid off 9% of its staff.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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