Robinhood Fined $30M By New York Regulators Who Say The Crypto Unit Was Uncompliant: What's Next?

The New York State Department of Financial Services said on Tuesday fined Robinhood Markets Inc (NASDAQ: HOOD) $30 million for significant anti-money laundering, cybersecurity and customer protection violations.

In addition to the penalty, Robinhood’s crypto unit will have to retain an independent consultant that will essentially audit the unit’s level of compliance with the department’s regulations and its remediation efforts with respect to the identified violations.

“As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” said Superintendent Adrienne Harris.

The department found Robinhood Crypto was inadequately staffed, that it failed to timely transition from a manual transaction monitoring system that was inadequate for the size of the company, and it didn’t invest enough resources to address the risks specific to the company.

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The department also slapped Robinhood on the wrist for not providing users with a dedicated phone number that handles customer complaints.

“All 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,” said Harris.

The stock did not react to the news in a negative way, as shares are up 1.83% to $9.21 at the time of writing, perhaps because Robinhood has paid significant fines in the past.

According to the SEC, between 2015 and late 2018 Robinhood made false claims and omissions about payments from trading businesses in exchange for forwarding its customers' orders to such firms for execution, otherwise known as "payment for order flow." Robinhood paid $65 million to settle an SEC probe for that.

In 2021, the Financial Industry Regulatory Authority (FINRA) fined Robinhood $70 million for its March 2020 outage that affected thousands of customers during historic market volatility, and for its confusing and misleading information surrounding margin trading.

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