Online retail broker Robinhood Financial LLC and its clearing affiliate, Robinhood Securities, have agreed to pay $29.75 million in penalties for regulatory violations that include failure to meet anti-money laundering and reporting requirements, and inadequate supervision of its clearing technology system.
The sanctions, imposed by the Financial Industry Regulatory Authority (FINRA), include a $26-million fine and a $3.75 million payment to some of its customers.
The firms consented to the settlement, but have neither admitted to nor denied the charges. Some of the issues identified were self-reported.
According to a FINRA release on Friday, Robinhood failed to establish and implement adequate anti-money laundering programs, which triggered a failure “to detect, investigate or report suspicious activity.” The firm also failed to detect instances when customers’ accounts were hacked.
Robinhood Securities failed to adequately respond to processing delays that should have flagged increased demand on the system, FINRA said. That affected its clearing operations and ability to meet certain regulatory obligations in January 2021, when a surge in trading volume led to severe latency in the system.
In addition, it failed to comply with reporting obligations for trading data, known as blue sheet data.
FINRA also found that Robinhood Financial’s disclosure to customers of its practice of collaring market orders — converting them to limit orders — was inaccurate or incomplete. It’s been ordered to pay customers whose market orders were collared and cancelled, then re-entered at an inferior price, $3.75 million in restitution.
The regulator found that Robinhood Financial failed to adequately supervise communications by social media influencers, some of which were misleading, outsourcing the task to a third-party vendor.
The Robinhood Financial violations occurred between May 2014 and September 2023, and the Robinhood Securities violations between November 2018 and July 2022, FINRA said.
“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,” Bill St. Louis, FINRA’s executive vice-president and head of enforcement, said in a release. “Today’s action reminds FINRA members that compliance with core regulatory obligations remains critical to safeguarding and serving all investors.”
The announcement follows a US$45-million settlement that Robinhood Securities LLC and Robinhood Financial LLC struck with the Securities and Exchange Commission (SEC) in January. In that proceeding, the SEC outlined a number of alleged recordkeeping violations that occurred between 2018 and 2024, including inaccurate or incomplete blue-sheet trading data. It also alleged the firms failed to file suspicious transaction reports on time, and failed to adequately guard against identity theft and prevent unauthorized access to their systems.
In 2021, Robinhood Financial agreed to pay a $57 million FINRA fine and $12.6 million in restitution to clients for regulatory violations that occurred between 2014 and 2021. They included distributing false and misleading information to clients, and failing to establish a sufficient customer identification program. As part of the settlement, Robinhood was required to submit a certification by a third party that it had rectified the issues and stopped making misrepresentations.